News
JSG October NAFTA Sugar Market Update
We opened our September NAFTA Update stating that the “US and Mexican sugar markets are rolling down the final stretch of FY’19 in orderly conditions.” In the intervening weeks things have become messier. The weather in critical areas of the US has turned decidedly counterproductive – rains and snows ranging from Montana to Michigan have hampered harvest operations and overly wet conditions have reduced prospects for the crop in Louisiana. Dryness in Mexico has extended to a worrying extent. With delays in harvesting activities and disruptions to cane refining operations, the spot refined sugar market has grown extremely tight. But first, some background…
We are now a few weeks into the FY’20 program year and the final numbers for the year just ended are coming together. The past two years have seen two clear trends in the US, neither planned nor welcomed, which have altered the landscape of the market: beet sugar availability has been declining and domestic deliveries of sugar for food and beverage use have been more or less flat.
The WASDE report released last Thursday showed estimated beet production of 4.907 million tons for FY’19 and 5.055 million tons for FY’20. The August 2019 WASDE report showed FY’19 beet production of 5.008 million and FY’20 beet production of 5.179 million tonnes. All the changes since relate to the 2019 beet crop. While the 2019 beet crop estimate was not changed in the October WASDE (50,000 tones was simply shifted from September to October), the estimate of new crop beet production has been reduced by 225,000 tons since August. The weather over the past several weeks in Minnesota, North Dakota and Michigan in particular has been frustrating to say the least. During the three-week period ended October 13th (21 days) there were 10.3 days suitable for fieldwork in Michigan, 8.1 days in Minnesota and 6.3 days in North Dakota. The current week has seen the impacts of the early winter storm that blew through the US upper Midwest during the latter part of last week. We expect to see significant further declines in the estimate of the FY’20 beet production estimate.
Crop condition and harvest progress has been uneven at best. As of October 13th, the crop in Colorado, was rated 85 % good or excellent. The crop was 49 % harvested versus 24 % last year and 30 % on the five-year average. In Idaho, 91 % of the crop is rated good or excellent. The crop was 33 % harvested versus 37 % last year and 38 % on average (with beets this nice, why rush…). In Michigan, 68 % of the crop was rated good or excellent (65 % one month earlier) and the harvest was 18 % harvested versus 37 % last year and 30 % on average. In Minnesota, 81 % of the crop was rated good or excellent and the harvest was 31 % complete versus 43 % last year and 71 % on average. In Montana, 64 % of the crop was rated good or excellent and the harvest was 13 % complete versus 40 % last year and 31 % on average. In North Dakota, 89 % of the crop was rated good or excellent (unchanged from one month earlier) and the harvest was 32 % complete versus 47 % last year and 77 % on average. In Oregon, 60 % of the crop was rated good (none excellent) and the harvest was 46 % complete versus 44 % last year. In Washington state,
the crop was 79 % harvested versus 41 % last year. In Wyoming, 69 % of the crop was rated good (none excellent) and the harvest was 22 % complete versus 48 % last year and 37 % on average. The average of nine FY’20 beet crop estimates received through our survey today was 4.897 million short tons. Estimates ranged from 4.800 to 5.000 million tons. Based on this 4.897 million ton estimate of FY’20 beet production and our projected FY’19 carry-out of 850,000 tons, the total beet sugar availability for FY’20 is projected at 5.747 million tons – the lowest level since FY’15 and 600,000 tons below the level seen in FY’17. Beet sugar availability has ground serially lower for the past three seasons.
The October WASDE showed a 50,000-ton reduction in FY’19 domestic deliveries and the same for FY’20. This follows a 25,000-ton reduction for each year seen in the September WASDE. USDA Sweetener Market Data reporting through August showed fiscal year to date domestic deliveries up 0.2 % while the October WASDE projects full year deliveries up 0.6 %, thus there is potential that we could see a further reduction in the deliveries estimate to ~12.075 million tons from 12.125 million tons if the YTD trend holds. USDA’s estimate of deliveries growth from FY’19 to FY’20 is already down at 0.2 %. Imports of SCP’s outside of the sugar program, FDA labeling rules and consumer choice are all factors in this story. Whatever the cause, domestic deliveries in the US have been essentially flat since FY’17, when deliveries were 12.102 million tons.
The USDA’s estimate of the FY’20 US S&D from the October WASDE report, adjusted to show a 13.5 % stocks/use ratio by lowering the estimate of Mexico’s exports to the US by 125,000 tons to 993,000 tons, is displayed here alongside the JSG estimate. Looking at the JSG figures, the carried-in beginning stock is higher than USDA due in part to our lower deliveries estimate for FY’19. We have incorporated a 4.897-millionton beet crop estimate as per above, and we have reduced our estimate of the Louisiana cane crop to 1.800 million tons from the 1.900 million ton estimate in the WASDE. We remain skeptical that the pace of imports under the re-export program will reach USDA’s 350,000 ton estimate due to the lower export estimates seen over the past two years. Our estimate is 300,000 tons. We have allowed for
a 0.5 % increase in domestic deliveries over FY’19. Mexico’s Export Limit is adjusted to 1.024 million tons to accommodate a 13.5 % stocks/use ratio.
The Mexican S&D as estimated by USDA took a turn for the worse in the October WASDE. We have been expecting a substantial reduction in the estimate of FY’19 IMMEX deliveries from the 480,000 tonnes tel quel that USDA has been holding all year, and we did see a 55,000 tonne reduction in the October report. Conadesuca data shows that exports under the IMMEX program totaled just 338,073 tonnes through September 22nd, so a further adjustment of 60,000 to 75,000 tonnes seems likely. In addition to the IMMEX adjustment, the report saw a 96,000-tonne reduction in domestic deliveries for human consumption to 4.140 million tonnes – down 2.38 % from the prior year. The estimate of exports outside of the 932,000 tonnes tel quel US Export Limit was increased by 15,000 tonnes to 1.262 million tonnes. (These exports as reported by Conadesuca through September 22nd totaled 1.298 million tonnes, so an upward adjustment can be expected.) Considering these changes and a 16,000-tonne increase in the estimate of imports under the IMMEX program, the ending stocks estimate for FY’19 was increased by 153,000 tonnes to an estimated 1,148 million tons.
The estimate of Mexican production for FY’20 is 6.065-million tonnes, 361,000 tonnes lower than FY’19. Dry conditions during the growing season have caused both concern and confusion. We received 11 estimates from an array of market participants from both sides of the US/Mexican border via a survey earlier today. While there was a 670,000 tonne range from high to low, nine of 11 estimates were tightly grouped – between 5.900 and 6.100 million tonnes. The average of 11 estimates was 5.956 million tonnes while the average excluding the high and low estimates was 5.961 million tonnes.
Domestic deliveries for FY’20 are estimated at 4.199 million tonnes – an increase of 1.425 % over FY’19 following a 2.38 % decline - and exports under the IMMEX program are estimated at 425,000 tonnes, which will likely be adjusted lower in time. Solving for sufficient ending stocks to bridge to the new crop, exports are estimated at 1.695 million tonnes (957,000 tonnes to the US under the Export Limit and 738,000 tonnes to non-US destinations and to the US for re-export).
If the 5.961 million-tonne average production estimate from our survey today proves accurate, exports to non-US destinations and to the US for re-export would be an estimated 634,000 tonnes. If, in addition, domestic deliveries are flat with FY’19 and IMMEX exports total 360,000 tonnes, which we think can be reasonably argued, exports to non-US destinations and to the US for reexport could weigh in at 758,000 tonnes. If the US Export Limit is 850,000 tonnes (993,000 strv as per the adjusted USDA S&D above) this would allow for exports to non-US destinations and to the US for re-export of 865,000 tonnes in FY’20.
The past month’s weather has clearly dialed up the level of apparent risk for the US and Mexican sugar markets. We view Mexico as having ample inventory to accommodate US needs in FY’20, though the composition of new crop production will be critical if the dictates of the Suspension Agreements are to be met. The available raw sugar supply for US refiners similarly appears adequate despite the lower production anticipated in Louisiana – and again assuming that Mexico will efficiently ship the full complement of “other sugars” for refining in the US. The US refined
market appears to be extremely tight nearby and we feel that higher prices are a) on the horizon and b) likely to be maintained given the state of the market.
While we believe our S&D above is defensible, there are three clear areas of risk: a worse than estimated outcome for US beet production, a worse than estimated outcome for Mexico’s cane crop and a better than forecast outcome for US deliveries for food and beverage use. These will only become clear in time, but our orderly transition from FY’19 to FY’20 has clearly hit some real turbulence.
Regards,
Jenkins Sugar Group, Inc. This email address is being protected from spambots. You need JavaScript enabled to view it.
This report has been compiled for general informational purposes only. While efforts have been made to ensure accuracy, Jenkins Sugar Group, Inc. assumes no responsibility for errors and omissions.