KANSAS CITY — The usually staid domestic sugar market has been anything but quiet this year and it appears the rollercoaster ride is not yet over, even as the U.S. sugar beet harvest begins with the promise of bringing some supply relief.

The domestic sugar market, which usually is insulated from the less predictable world market by the U.S. Department of Agriculture run sugar program, this year has followed world prices sharply higher. But that’s only one piece of the complicated picture that includes a controversial U.S. 2009-10 demand projection, recent reports Brazil plans to double sugar cane production in six years and a major shortfall in Mexico after that country missed production forecasts by 10% and shipped about 25% of its outturn to the United States.

The U.S.D.A. in its Sept. 11 World Agricultural Supply and Demand Estimates forecast U.S. 2009-10 sugar production at8,025,000 tons, raw value, and total supply at 11,419,000 tons. Of special note is the U.S.D.A. 2009-10 U.S. food demand forecast of 10,140,000 tons, down 6% from 2008-09 at a time when sugar consumption is increasing as more companies switch to sugar from high-fructose corn syrup. Traders suggest the demand number was low simply to "make the numbers work" in the overall supply/demand scenario.

Sugar beet harvest was under way with 3% of the crop lifted in Minnesota and 2% in North Dakota, the two states that encompass the Red River Valley region, which typically accounts for about half of all U.S. sugar beet production. The harvest was expected to begin around Sept. 15 in most other producing states.

The new crop supply is not coming a minute too early for U.S. sugar users who have seen prices for domestic bulk refined sugar rise to 42c a lb, f.o.b., up 20% from early August and up 27% from the early May low of 33c. But some traders suggest it will be several months before increased supply of new crop sugar will have much impact on domestic prices since the United States is a net sugar importer.

Because of a global sugar shortfall, primarily the result of a 40% drop in outturn in top-consuming India because of a weak monsoon, world raw sugar futures (No. 11) and domestic raw futures (No. 16) in New York shot to 28½-year highs several times since midyear, with the latest and highest at 24.39c in the nearby contract on Aug. 31 before profit taking pulled prices back slightly last week. Nearby world futures prices were more than double the Jan. 2, 2009, value, with the widest gains since June 1. The No. 16 contract has followed the No. 11 contract, which also pulled refined prices higher.

The seriousness of the tight global supply was evident early last week when refined sugar prices rose to an all-time high of 53c a lb in Mexico City, double values on Jan. 1, 2009, according to press reports from that country.

Mexico said it planned to import up to 600,000 tonnes of sugar this year, equal to the shortfall from forecast production of 5.6 million tonnes, to relieve its shortage. Reports indicated Mexico would tender for 450,000 tonnes on Sept. 18 in a series of smaller tenders, with additional tenders to follow "as needed."

Some argue Mexico over exported sugar in 2008-09 to the United States duty free under the North American Free Trade

Agreement (NAFTA). It’s estimated by the U.S.D.A. that Mexico will ship about 1.3 million tonnes to the United States in 2008-09, about 25% of its 2008-09 production of 5 million tonnes. The vast majority of those shipments came across the border from October through May at prices well below those currently quoted in the United States or in Mexico and have since dropped to a trickle, contributing to the tightness in the United States.

Meanwhile, Brazil indicated it would invest significantly in its sugar industry with the intention of doubling production by 2015, according to press reports. Brazil already is the world’s largest sugar producer, but more than half its crop goes into the production of ethanol.

It would appear that the United States and the world are scrambling for every pound of sugar available this year. But as weather returns to "normal" in India, Brazil ramps up production and Mexico and the United States figure out how to manage sugar trade under NAFTA, it’s likely only a matter of time, maybe less than two years, before the world market returns to a sugar glut, its typical state, and calm returns to the U.S. market.

This article can also be found in the digital edition of Food Business News, September 15, 2009, starting on Page 1.