KANSAS CITY — The U.S. domestic sugar market was shaken out of its usual summer lull as tight global supplies sent world futures prices to at least 28-year highs with bulk refined values jumping more than 10% last week and sugar users pleading for relief in the form of an "immediate" increase in import quantities.

World raw sugar futures (sugar 11) on New York’s Intercontinental Commodity Exchange (ICE) hit 28½-year highs with the nearby contract trading above 23c a lb at midweek. The nearby futures price has doubled since late December and was up more than 60% from a year ago. "White" sugar futures on London’s Liffe exchange were said to be at all-time highs last week.

While U.S. grain and soybean markets often are subject to wide swings during the summer time because of crop concerns, such moves are rare in sugar. An insular, and highly controversial, government sugar program typically keeps the price of sugar within a narrow range.

Under the program, the U.S. Department of Agriculture controls domestic sales volume and imports, with the exception of un­limited, duty free shipments from Mexico under the North American FreeTrade Agreement. Price stability under the program depends on U.S. prices maintaining a cushion above world prices.

Soaring world market pulled ICE domestic raw sugar futures (sugar 16) to multi-year highs of 27c a lb through the September 2010 delivery period. (The sugar 16 contract with slightly higher quality specifications has replaced the traditional sugar 14 domestic contract.)

But that changed early last week when processors hiked offering prices for domestic bulk refined beet and cane sugar by 4c a lb, to 39c f.o.b. for spot through December 2010 shipment, with traders indicating at least one refiner offering material for spot delivery at 45c a lb because of limited supply.

With the exception of a 2c-a-lb dip in refined cash prices in late April and a brief 2c rise in late June, domestic bulk refined sugar prices have held near 35c a lb since mid-October 2008. The 39c level was the highest since values briefly touched 40c late last summer due to tight supplies and ongoing tight refining capacity in the wake of a February 2008 explosion and ensuing shutdown of the Imperial Sugar Co. refinery in Port Wentworth, Ga., heightened by Hurricane Gustav in early September that temporarily shut down cane refineries in the Gulf. Prior to that the most recent highs were 44@45c a lb in September 2005 after Hurricane Katrina.

Traders were generally in agreement last week that it was the world sugar situation that prompted U.S. cane refiners to increase refined sugar prices as they competed on the world market to supply the portion of their raw cane needs not met by domestic producers. Beet processors followed with similar hikes.

"It’s a case of the tail wagging the dog," one trader said, noting that only 20% to 25% of total U.S. sugar supply is imported, with at least half of that typically entering duty-free from Mexico under NAFTA.

Global sugar supplies are in disarray because a poor seasonal monsoon severely cut cane sugar production in India, the world’s largest sugar consumer and second largest producer, and excessive rains disrupted sugar cane harvest in Brazil, the world’s largest sugar producer and exporter, which also diverts more than half of its crop to ethanol production. India, typically a sugar exporter, instead is an importer this year.

Mexico, meanwhile, announced Aug. 6 an import quota up to 393,000 tonnes of refined sugar by the end of 2009 to offset a shortfall in domestic production. But Dow Jones Newswires last week said traders indicated Mexico would likely import only 100,000 to 150,000 tonnes by the end of the year, mainly due to logistical issues.

Mexico’s National Sugar and Alcohol Chamber said 2008-09 production was 4.962 million tonnes of semi-refined standard sugar, down 10% from early-season forecasts and down 10% from 2007-08 outturn of 5.521 million tonnes.

Mexican shipments to the United States in 2008-09 (beginning Oct. 1, 2008) were estimated at 1,450,000 tons, raw value, more than double the 694,000 tons in 2007-08, the U.S.D.A. said in its Aug. 12 World Agricultural Supply and Demand Estimates. Monthly shipments from Mexico to the United States dropped sharply after May, indicating shrinking supplies south of the border. And Mexican shipments in 2009-10 were projected at a mere 165,000 tons, indicating continued tight supplies.

Domestic sugar users, meanwhile, have emboldened pleas to the U.S.D.A. to immediately raise U.S. sugar import quotas for this and the next marketing years. Their initial requests for import relief began a few months ago, before the world situation was so critical. Unless import quotas are relaxed, "our nation will virtually run out of sugar" by the end of the next marketing year, several users and user groups said in an Aug. 5 letter to Secretary of Agriculture Tom Vilsack.

But most traders agreed it’s too late logistically this marketing year for increased imports to make a difference on U.S. supply. Plus, any additional U.S. import demand may drive prices even higher, especially as the United States would be competing with Mexico, India and other importers for limited global supply and because domestic raw futures values are following world futures prices.

That leaves the U.S.D.A. in an especially complicated situation as it administers the sugar program, in which the department would tend to "err on the side of caution," Barbara Fecso, economist, Dairy and Sweeteners Analysis, Farm Service Agency, U.S.D.A., said at the American Sugar Alliance Symposium in Park City, Utah, the first week of August. The A.S.A. represents sugar producers.

While not ruling out an import adjustment, the implication was the U.S.D.A. would prefer not to increase the quota since some U.S. processors still had supply available for the current marketing year and because the Imperial refinery in Georgia was increasing outflow after coming back on line in July. The department did increase the T.R.Q. a year ago when prices touched 40c a lb, but world supplies were more available and the spread between world and domestic raw sugar futures was wider. Any import adjustment would have to be made before the end of the current marketing year, or after April 1 of the next year, except in an emergency such as a hurricane disruption.

Ironically, perhaps, while U.S. sugar prices jumped last week, the U.S.D.A. indicated domestic supplies actually loosened. Ending stocks on Sept. 30, 2009, were forecast at 1,252,000 tons, up 150,000 tons from its July forecast. Sept. 30, 2010, ending stocks were projected at 709,000 tons, about double the July projection. The closely watched stocks-to-use ratio improved to 11.2% for 2009 and 6.7% for 2010, a level most in the trade see as insufficient, especially considering the projected 2009-10 food delivery total of 10,140,000 tons, which is down 7% from the current year and 4% below 2007-08 when the stocks-to-use ratio was a comfortable 15.2%.

But it may be "time to rethink what reasonable ending stocks are when you have a NAFTA region," Ms. Fecso said at the A.S.A. meeting.

The U.S.D.A. appeared willing to allow the domestic situation to work through the tight supply situation in the final two months of the current marketing year, even if prices were not to users’ liking. But that was before last week’s market activity. Traders indicated some upward potential still existed in world sugar prices, in part due to speculative activity in the futures market. Whether world prices continue to rise and U.S. refined sugar prices continue to follow, and whether the U.S.D.A. decides to adjust import quotas, remains to be seen.