VAIL, COLO. — Stress in the form of tight supplies and high prices continue in the spot sugar market due to a combination of limited beet sugar supplies, logistics problems and other factors, according to speakers at the 37th International Sweetener Symposium here Aug. 1.
“Things are not running like a well-oiled machine,” said Barbara Fecso, PhD, branch chief, commodity analysis branch, economic and policy analysis division of the farm production and conservation business center, US Department of Agriculture.
For an orderly market, beet processors need to run at capacity, cane refiners store raws and produce refined sugar as needed to fill orders, intermediaries such as distributors or wholesalers buy some sugar early in the year hoping to sell at higher prices to fill gaps later in the year, and sugar users (food manufacturers) mainly located near population centers buy sugar early and take delivery quarterly or monthly, with processors allowing them to shift supplies later if they don’t need as much sugar as expected or pull contracted supplies early in needs exceed expectations.
But spot sugar prices are near or above 50-year highs, some users and refiners are importing high-duty sugar due to the lack of supplies on the domestic market and sellers are requiring buyers to take sugar deliveries at contracted times or risk losing it as the seller can easily resell the supply at a much higher value than originally contracted.
The market began to “unravel” when two beet processors declared force majeure due to weather reduced crops in late 2019, Ms. Fecso said. The current stress in the market also is “beet motivated” due to weather, she said. Beet processors sold heavily early to regain market share lost from the 2019 actions, then exited the market, putting pressure on the cane sector and leading to an increase in high-duty sugar imports. Some cane refiners then also exited the market in part due to a lack of rail cars to ship refined sugar. Buyers, required to take shipment of beet sugar at specifically scheduled times, took the deliveries but in some cases left the sugar sitting in sealed rail cars due to a lack of other storage capacity, thus creating a rail car shortage and exasperating already stressed logistics.
Ms. Fecso noted that the USDA has taken more than 20 actions adding more than 2 million tonnes of sugar to the market since 2019. Increases in raw sugar have been favored as raws can more easily be stored than refined sugar, and in the current market, if US refiners can’t get rail cars for refined sugar, “how can foreign suppliers do that?”
Disruptions to the market typically take three to four cycles to correct, Ms. Fecso said, adding that “high prices are the best cure for high prices.”
Randy Green, principal, Watson Green LLC, and a consultant to the Sweetener Users Association, also noted supply chain issues as contributing to tightness in the current sugar market. In addition to problems with rail deliveries, he cited trucking industry issues, labor shortages and procurement challenges of raw materials and manufacturing supplies as affecting sugar and other industries in general.
Mr. Green said he talked with large buyers and analysts to gather supply chain issues specific to sugar. Some sugar users were encountering slowed production lines due to a lack of sugar supplies, although most were not forced into shutdowns. Deliveries of contracted supplies varied, and some experienced delays or did not receive shipments. They also experienced how freight was priced and some also were unable to order above previously allocated amounts that were enforced monthly by the seller.
Overall, sugar users said sugar suppliers did a “pretty decent job,” some “haven’t missed a beat,” and they gave the industry a “C” in managing logistics and freight. Some users also noted worse experiences in other ingredients, including high-fructose corn syrup, dextrose, colors and flavors.
Some users have found management more receptive to holding larger inventories rather than “just in time” inventory management, which many said they didn’t favor even before the current market situation. Order lead times have increased across the food industry, “much more for some commodities than sugar,” Mr. Green said.
Mr. Green said government actions that previously led to “adequate supply at reasonable prices” as mandated in the US sugar program may no longer be achieving that goal, and that using the sugar ending stocks-to-use ratio to measure adequate supply “is being distorted by various supply factors, or is no longer useful and should be replaced by some other metric.” The USDA has targeted a sugar ending stocks-to-use ratio between 13.5% and 15.5%, with supplies at 13.5% and above deemed adequate.
Continued market operation under high-tier pricing will lead to demand destruction, will further incentivize imports of sugar containing products and could result in permanent reliance on high-tier imports, which could cost US jobs, Mr. Green said.Even though the USDA has taken several positive steps to increase sugar supplies, “when supply chain problems create major bottlenecks, USDA should err on the side of more (sugar) stocks rather than fewer,” Mr. Green said.