Nearby refined sugar prices have held firm.

KANSAS CITY — Despite expected record domestic sugar production in the 2017-18 marketing year, sugar supplies have been tight, and nearby refined sugar prices have held firm. And there seems little reason for that to change significantly any time soon.

The U.S. Department of Agriculture in its January World Agricultural Supply and Demand Estimates (WASDE) report forecast U.S. 2017-18 sugar production at a record 9,312,000 short tons, raw value, up 343,000 tons, or 3.8%, from 2016-17 and topping the prior record of 9,032,000 tons set in 1999-00. The U.S.D.A. reduced the production forecast in subsequent WASDE reports, though at 9,230,000 tons forecast in its Feb. 8 WASDE, total sugar production still would be record high.

U.S. beet sugar production was forecast at a record 5,359,000 tons in December, up 5% from 2016-17, but also was reduced in January and February with the latest forecast at 5,219,000 tons, up 2.3% from a year earlier and also still record high.

In its Jan. 12 Crop Production 2017 Summary, the U.S.D.A. estimated sugar beet production at 35,325,000 tons, down 4.3% from 2016. But evidence of a record high sucrose extraction rate of 15.4%, up from a historically low extraction rate of 13.7% in 2016-17, more than offset the smaller beet crop. Indications of lower sucrose extraction in December contributed to lower beet sugar estimates in January and February, the U.S.D.A. said, although it suggested rates could again rise as the season goes on.

Cane sugar production was forecast at 4,055,000 tons in January, up 5% from 2016-17, and included record production in Louisiana and higher-than-expected production in Florida, which some in the trade said did not adequately account for losses from Hurricane Irma. The cane sugar production forecast was lowered to 4,011,000 tons in the Feb. 8 WASDE as higher production in Louisiana (raised to a record 1,859,000 tons) was more than offset by a reduction in Florida (lowered to 1,992,000 tons) attributed to “a processor-forecast reduction” that traders said likely was related to losses from Irma.

Sugar imports were forecast at 3,316,000 tons, unchanged from January but up 72,000 tons, or 2.2%, from 2016-17. Total sugar supply was forecast at 14,422,000 tons, down 57,000 tons from January but up 155,000 tons from 2016-17.

At the same time, increased sugar use year-over-year is expected to more than offset increased supply, although the U.S.D.A. revised down in February very strong use estimates from January. Total sugar use was forecast at 12,580,000 tons in 2017-18, up 189,000 tons, or 1.5% for last year (including deliveries for food at 12,325,000 tons, up 223,000 tons, or 1.8%).

Higher beginning stocks and lower use more than offset lower production, raising the closely-watched ending stocks-to-use ratio to 14.6% in 2017-18, up from 14.4% in January but down from 15.1% in 2016-17 and 17% in 2015-16. Some contend that the ratios for both years suggest sugar supplies should be adequate as both are above the minimum target of 13.5% that is maintained by adjusting imports from Mexico and/or tariff-rate quota imports. At the same time, the 2017-18 ratio is the lowest since 2013-14, which suggests tighter supplies than in recent years.

Refined sugar prices, meanwhile, have been firm, with beet sugar prices rising over the past year. Last week bulk refined beet sugar was quoted at 36c to 37c a lb f.o.b. Midwest, and bulk refined cane sugar was quoted at 37c to 38c f.o.b. Beet sugar prices were up 7.5c a lb, or about 25%, from a year ago, while refined cane sugar was up 1.5c to 3c a lb, or 4% to 9%, with variations by region.

Trading for 2017-18 (the current marketing year) mostly is completed, which means the quoted values for beet sugar at least, mostly were nominal as only a small amount of material was trading on the spot market. Most beet processors know what they are likely to produce and are very well sold, sold out or even oversold in a case or two. The sugar beet crop has been out of the ground for some time, and weather has been sufficiently cold to keep outside beet piles frozen to limit losses. Production levels of refined cane sugar are less certain as the harvest just wrapped up in Louisiana and still is ongoing in Florida. Plus, some U.S. refiners depend on imported raw cane, which tends to come with greater uncertainty, especially from Mexico, the United States’ largest supplier.

While estimating supply can be difficult due to uncertainty about imports, estimating or forecasting demand is even more difficult for the U.S.D.A. Sugar deliveries for food in 2017-18, forecast at 12,400,000 tons in January, were up 2.25% from 2016-17, with the latter up 2.1% from 2015-16. Revisions in February brought the increases closer in line with historical population growth levels of 1% to 1.5% annually.

It should be noted that sugar deliveries are not the same as sugar consumption, which is lower than deliveries due to losses at various points along the supply and consumption chain, as well as conversion of estimates on a raw basis versus refined. Raw sugar is adjusted by 0.9346 to equal refined sugar.

In U.S.D.A. data back to 1966, sugar deliveries on a raw basis for domestic food and beverage use bottomed at 7,731,000 tons in calendar 1986 after declining for about a decade in large part due to the rise of high-fructose corn syrup, which came into play in 1967 but saw significant growth from 1977 through 2002. Sugar deliveries in 2016 were estimated at a record 12,047,000 tons, up 56% from the low over the 30-year period. During that period, HFCS deliveries rose to 8,903,000 tons, dry basis, in 1999, which also corresponded with record total caloric sweetener deliveries at 21,155,000 tons. HFCS deliveries peaked at 8,998,000 tons in 2002 and declined 26% to 6,690,000 tons in 2016, the lowest since 1992. While the increase in sugar deliveries certainly benefited from the decline in HFCS deliveries, it was not a one-for-one replacement as total caloric sweetener deliveries, estimated at 20,702,000 tons in 2016, have declined 2.1% from the 1999 peak even with population growth.

On a per capita delivery basis (still not actual consumption), which factors in population growth, total caloric sweetener deliveries peaked at 151.6 lbs in 1999 (corresponding with record high total sweetener deliveries), but declined 23.5 lbs, or 15.5%, to 128.1 lbs in 2016. During that period, per capita HFCS deliveries declined 22.4 lbs, or 35%, while refined sugar deliveries increased 3.3 lbs, or 5%.

While overall caloric sweetener consumption has been under attack, sugar has been deemed a more natural product and has won a place in many product reformulations in recent years, largely at the expense of HFCS, which remains favored for beverages.

Another more recent development in the sugar market has been demand for beet sugar versus refined cane sugar, which is related to prices over the past several months. Demand for cane sugar, which is non-G.M.O., skyrocketed in early 2016 when it appeared a Vermont law requiring the labeling of G.M.O. ingredients in food products would go into effect July 1. Beet sugar is nearly all from G.M.O. sugar beets, as is the vast majority of HFCS. Several food companies switched to cane sugar before July 1, 2016, which drove refined cane sugar prices higher amid already tight supplies and pressured prices for beet sugar, which was more abundant but in less demand at the time. But a federal G.M.O. labeling law was passed that usurped the Vermont law, making the rush to non-G.M.O. sugar unnecessary for labeling purposes.

The spike in demand for refined cane sugar had pushed the spread between beet and cane sugar to a historically wide 7.5c a lb from a normal 1c to 2c a lb. As the labeling requirement vanished, price won out, and demand for much lower-priced beet sugar surged while cane sugar demand languished.

Through the first two months of 2017-18 (October and December 2017), deliveries of beet sugar were up 11.5% from a year earlier, “continuing the strong growth in the previous year,” the U.S.D.A. said in its January Sugar and Sweeteners Outlook. Deliveries of cane sugar, meanwhile, were down 4.6%, “also continuing trends from 2016-17,” the U.S.D.A. said.

The strong pace of deliveries of beet sugar versus cane sugar should abate as the price discount of beet sugar to cane sugar narrowed to a typical level of about 2c a lb as of the first of the year.

Part of the current market tightness also can be attributed to slow imports from Mexico, which are controlled by agreements suspending anti-dumping and countervailing duties that were revised in 2017 to boost the amount of raw sugar imports needed by U.S. cane refiners, while reducing refined sugar imports. The U.S.D.A. in its February WASDE forecast 2017-18 sugar imports from Mexico at 1,268,000 tons, up from 1,201,000 tons estimated in 2016-17. But actual shipments from Mexico in the first three months of 2017-18 were down 64% from the same period last year. Shipments have been slowed by high sugar prices in Mexico, with a small amount of U.S. sugar actually exported to that country. Exports from Mexico are expected to increase in coming months as the cane harvest there gains momentum and prices decline.

Meanwhile, most attention in the United States has turned to the 2018-19 marketing year, which begins Oct. 1. Current price offers for beet sugar are around 34c a lb, f.o.b. Midwest, and for refined cane sugar are 35c to 36c a lb f.o.b. Southeast and 36c a lb f.o.b. Gulf (Louisiana). While down from nominal spot prices, the 2018-19 values still are considered strong, and many in the trade see limited downside.

As usual in the sweetener industry, there isn’t agreement all around about the level of demand, where prices are headed or even the accuracy of supply estimates. Despite the mixed opinions, many contend that it is unlikely there will be two consecutive years of record U.S. sugar production, and that consumption will continue to rise, based on population growth if nothing else. As a result, traders see less sugar supply next year and the likelihood of continued price firmness.