A clearer picture was emerging in sweetener markets as the U.S. corn and sugar beet harvests were mostly completed and the sugar cane harvest was well under way in the United States and was gaining momentum in Mexico. There appeared to be a softer tone to the sugar market with prices easing domestically and globally, but corn sweetener values for 2012 were coming in above 2011 levels, albeit below some initial offers.

U.S. sugar prices have held at historically high levels so far this year with Midwest beet offers averaging 56.3c a lb f.o.b. (the low end of Milling & Baking News price range) through mid-November, up about 2c from the 2010 average and about 20c above the latest five-year average of 36.6c. Even though initial sugar production was previously committed on contract, new crop supply has been offered for 2012 at levels around 59c a lb, below the recent high of 62c. Some traders expected price weakness as new crop processing gains momentum and noted cases of sugar trading at 55c a lb, although that price wasn’t common.

At the same time, the sugar cane harvest was progressing well in the South and was under way in Mexico, which has become the source of more than 10% of the U.S. sugar supply. Some controversy surrounded the latest U.S. Department of Agriculture projection of 2011-12 imports of Mexican sugar, pegged at 1,581,000 short tons, raw value, which was up 37% from October and was in part based on what some saw as an overly optimistic 2011-12 Mexican production forecast.

Several years into the North American Free Trade Agreement, which provides for the free flow of sugar and corn syrup between the United States and Mexico and which some feared would swamp the U.S. with Mexican sugar, the United States has seen more periods of tight sugar supply and higher prices despite the dramatic increase in sugar from Mexico (up from 60,000 tons in 2006-07 to 1,705,000 tons in 2010-11). NAFTA seemingly has resulted in higher sugar prices and tighter supplies in Mexico and significantly increased shipments of U.S. 55% high-fructose corn syrup to Mexico, where sugar consumption has declined about 20% since 2007 while HFCS consumption has soared about 2.3 times.

The impact has been seen in the U.S. corn sweetener market, where strong demand for HFCS in Mexico has been a bargaining tool for U.S. corn refiners who otherwise were facing years of falling HFCS demand in the United States, and has changed the method of negotiating annual contracts. The impact has mainly been on 55% HFCS, used by the beverage industry, as U.S. corn refiners have said 2012 contract negotiations will be on a case-by-case basis with pricing based on availability rather than posting an offer price at the beginning of the negotiating season as in the past.

Negotiations for other corn sweetener products, including dextrose and 42% HFCS, used in many baking applications, have been more traditional. Contracting for dextrose, in high demand as a lower-priced substitute for sugar, appeared to be mostly completed at $4 a cwt higher than 2011 levels. Contracting for 42% HFCS and other liquid products, which got off to a slow start, now appears to be moving along well with price advances from 2011 averaging about 10%, with some contracts for regular corn syrup jumping 20% or more.

U.S. corn refiners have benefited both from high U.S. sugar prices and from strong HFCS demand in Mexico.