BY PETER A. MEYER
The sugar and corn markets as we enter the harvest season in North America have presented a tumultuous display of abundance, avarice and confusion.
The corn crop started with a large estimate by the U.S. Department of Agriculture and seemed to grow larger with each passing day. The wet spring delayed planting but provided bountiful moisture in most growing areas. The anecdotal yield information from Iowa, Illinois and Indiana, with yields of well over 200 bus per acre in many spots has been phenomenal.
With harvest 6% complete as of Sept. 21, we should begin to get some solid numbers over the next two to three weeks. The frost danger has receded as the crops have matured. The U.S.D.A. stocks estimates issued Sept. 30 should add to the clarity of the outlook for U.S. and world grain prices.
Ample corn supply
In any event, there will be ample corn for food and feed in the United States and enough left over for a drop or two of ethanol. The federal government is trying to expand the mandate beyond 10% inclusion but a number of eastern states have sued to at least slow this plan. Prices for products from corn, high-fructose corn syrup, corn syrup, and dextrose look better given the higher priced sugar environment both domestically and around the world.
Data from a September report from the International Sugar Organization illustrated in the table below shows two major reductions in stocks. This, combined with shortages in India and China, has caused a significant jump in world sugar prices. Even Brazil, with a large crop, has been buffeted by heavy amounts of rain during harvest that has slowed harvest and reduced sugar yield.
NAFTA region chaotic
For the North American Free Trade Agreement region the sweetener markets have been chaotic, at best. The litany of the sweetener crisis is something out of a phantasmagorical novel. The Mexican producers were faced with relatively large inventories of sugar at the start of the year, an exceedingly weak peso and relatively high U.S. dollar prices for sugar. They exported like crazy.
In fiscal year 2009 imports to the United States from Mexico were estimated at 1,245,000 metric tons, raw value (M.T.R.V.). This was both an extraordinary amount of sugar and oddly was needed because of a plant explosion and shutdown at the Imperial Sugar Co. plant in Port Wentworth, Ga. The fire, which occurred in February 2008, killed 14 workers and injured nearly 40 others. As that restart dragged out supply/demand balances got tighter and refined prices rose. The commitment of the rest of the industry to maintain high production rates and the backup of beet sugar inventories seemed to allow the United States to squeak by on available supplies.
It would appear that the U.S.D.A. was willing to allow their Mexican counterparts to struggle with supply issues from their side of the border. Economia went through a series of variations of emergency tariff rate quotas and other measures to assure a sugar supply in the near term. Having first dismissed the need for sugar in the short term, the Mexican government quickly learned that short-term prices rises and shortages were not a good political strategy.
Declines in deliveries for food?
For the next year the U.S.D.A. is projecting fiscal year 2010 deliveries for U.S. food to decline by 5.5% from fiscal year 2009. The higher sugar prices may result in this kind of decline. However, on a fiscal year to date basis, U.S. food use is up 2.7% this year. It is also likely that in April, in accordance with the new sugar program, some additional T.R.Q. will be granted to increase supply, if in fact the market demand does not decline. If consumer preferences are truly driving more sucrose usage the additional T.R.Q. may be needed.
With additional sugar about to enter the Mexican market prices have moved to a level similar to the United States. In the background these higher prices have formed a solid basis for increased HFCS imports from the United States. Lower corn prices have helped with that as has the willingness of the U.S. soft drink companies to offer advice and comfort on these transactions. An additional 200,000 tons per year of HFCS in Mexico over each of the next two years would not be a surprising outcome.
Corn refiners are suffering from a 20% decline in starch demand and lower starch prices. Some respite for HFCS in Mexico and somewhat more stable U.S. sales volume would be welcome developments.