News
January 2020 JSG NAFTA Sugar Market Update
The USDA published updated S&D data for the US and Mexican Sugar markets Friday, registering the full impact of the mid-November freeze in Louisiana while reflecting a slightly less dire situation for the beet crop. The estimate of production in Louisiana was dropped to 1.513 million tons, down 199,000 tons from the December estimate and down 394,000 tons (over 20 %) from the FY’19 crop. The estimate of beet production was increased by 77,000 tons to 4.444 million tons – 495,000 tons lower than the FY’19 crop. The estimate of imports of sugar paying the high-tier duty was increased by 30,000 tons to 100,000 tons based on current favorable economics. Imports under the CY’2019 free trade agreements during Q4’19 were 10,000 tons lower than estimated, thus the TRQ imports estimate was reduced by this amount. There were no changes made to the demand side of the ledger. The ending stocks/use ratio was estimated at 12.7 % - an even 100,000 tons shy of the 13.5 % mark. As a result of the horrific growing and harvest seasons, FY’20 US domestic production is estimated 841,000 tons lower than FY’19 and 1.135 million tons, or 12.2 %, lower than FY’18 production.
Taking today’s report at face value, the current situation appears manageable. In March, the DOC will add 100,000 tons to Mexico’s Export Limit and the market will be sufficiently supplied at 13.5 % stocks/use – business as usual. The reality is far less clear.
US refined sugar supply: Beet sugar availability has been declining each year for the past three years. Considering carriedin inventories and production during each fiscal year, beet sugar availability in FY’20 is 656,000 tons lower than FY’19 and 1.270 million tons lower than FY’17. The greatest challenge facing the market is replacing this 656,000 tons of US refined beet sugar (delivered with impeccable quality in conveyance tailored to customers’ needs; with well-tuned and tested logistical capabilities and produced in the Midwest and Mountain states) with some mix of imported sugar (raw and refined; in bulk and in bags and totes; in vessels and trucks and by rail; and imported/processed on the periphery of the country). Meshing this foreign supply with highly structured US end user requirements will be the real trick. As the USDA has little ability to impact the quality of imports beyond “raw” or “refined”, it will be left to the industry itself to address the issues that inevitably lie ahead.
Imports: In Friday’s WASDE report, total imports were estimated at 3.881 million tons – the highest level in at least the last 20 years. The next highest year for imports was FY’14, when total imports were 3.742 million tons and Mexico exported 2.129 million tons to the US. In FY’14, 51.4 % of Mexico’s exports (1.095 million short tons) went to refineries in Baltimore, New Orleans, New York, Philadelphia, San Francisco and Savannah. As Mexico was in massive surplus and in its second year of purging stocks, exports in Q4’2013 totaled 602,080 tons or 28.2 % of total exports – including 306,000 tons delivered to the above-mentioned refineries. Assuming that the new amendments to the Suspension Agreements remain in force through FY’20, the coastal cane refiners will be charged with refining at least 1.210 million tons of Mexican sugar based on today’s report. Based on Conadesuca data, from October 1st through December 15th total exports from Mexico to the US were 52,395 short tons raw value of which 32,303 tons shipped as “other sugars” with polarization of less than 99.2 degrees. In January-September FY’14 the coastal cane refiners took in 789,000 tons of Mexican sugar. In the final three quarters of FY’20 they may have access to at least 1.175 million tons – nearly 50 % more.
Refining Capacity: Whether or not Mexico has this amount of sugar to ship is at question, but regardless, cane refining capacity utilization will be a critical factor in keeping the market well supplied with refined sugar. We estimate total US cane refining capacity at ~6.875 million tons based on historical high-water marks for ASR Group/Florida Crystals, CSC Sugar, Imperial Sugar, LSR and US Sugar. To achieve this caliber of performance would require a high level of capacity utilization throughout the fiscal year. The highest annual melt for the US industry in any relevant comparable period was 6.547 million tons in FY’09. In FY’19 total US melt was 6.389 million tons. Cane refiner melt in the first two months of FY’20 averaged ~550,500 tons. If this pace is maintained total melt for the year would be 6.606 million tons. (Last year refiner melt averaged ~528,400 tons in October/November and averaged 532,500 tons monthly for the year. In FY’18 refiner melt averaged ~528,175 tons in October/November and averaged 524,657 tons monthly for the year.) If cane refining capacity were to be fully utilized this year, refiner melts would have to average 573,000 tons per month for 12 months. Given the performance during the first two months, maximum capacity utilization for the year now looks like 6.830 million tons. It should be noted that despite the force majeure notices by United Sugars and Western Sugar, deliveries in OctoberDecember were not generally impacted – in many cases customers were notified that any contracted balances that were not pulled by December 31st would be cancelled. Thus, any shift on reliance from the beet sector to the cane sector was essentially deferred until the current quarter. In essence, 100 % of the beet shortfall will be felt in the final three quarters of the year. We will watch closely to see how cane refining capacity utilization tracks with overall needs.
Reliance on Mexico: While the original, unamended Suspension Agreements have been in effect since December 6th, the DOC on Friday published final amendments to the Agreements that mirror the vacated 2017 amendments. It is anticipated that the amendments will be signed on January 15th and will apply to all shipments from Mexico to the US retroactive to October 1st, 2019. In addition to the replacement amendments being put in place, in mid-December the American Sugar Coalition notified the US Court of International Trade that it will appeal the Court’s October 18th ruling in
favor of CSC Sugar to the US Court of Appeals for the Federal Circuit, which was the basis for the 2017 amendments being vacated. Mexico will play a crucial role in supplying the US sugar market. Under the Suspension Agreements, DOC will determine the Target Quantity of US Needs for a final time for the year using the March WASDE report and solving for a 13.5 % stocks/use ratio, and Mexico’s Export Limit will be set at 100 % of this value. Based on today’s report, the DOC/USDA will look to Mexico to export 1.927 million tons to the US. Today’s report estimates Mexico’s export availability at 1.873 million tons raw value (1.603 tonnes tel quel) based on 5.772 million tonnes of production and a 235,000-tonne draw down in stocks. There is a lot of downside risk in this number.
Cumulatively through January 4th, 744,455 tonnes of sugar has been produced this crop versus 1.062 million tonnes last year (30 % lower) and 1.064 million tonnes as per the crop plan (30 % lower). Area harvested is 26.9 % behind last year, ag yield is 79.3 tonnes of cane per hectare versus 80.20 tonnes last year and factory yield is 9.24 kilos of sugar per tonne of cane versus 9.52 kilos last year. The 2019-20 crop is shown at right in the shaded section, the official Conadesuca estimate for the crop is projected in the blue line and the actual progress of the 2018-19 crop is shown in the black bars. It is still too early in the cycle to make a reliable estimate of the Mexican crop, but a 5.500 million tonnes crop (or lower) seems as likely as a 5.772 million tonne crop. Mexico does not have to declare whether or not it will fulfill its Export Limit until the end of March. Under the terms of the Suspension Agreements, Mexico cannot export sugar to the US “in a manner that requires Mexico to satisfy its needs with imports of sugar from a Third Country or Countries.”
There are layers and layers of risk facing the US supply chain this year. The myriad barriers and requirements imposed between the US sugar program and the Suspension Agreements with Mexico make addressing the current (admittedly unique) situation extremely difficult to address. Replacing reliable US refined sugar supply on the scale required will be a real challenge, and Mexico will not likely be the solution due to its lower crop and limited ability to produce refined sugar that can ton-for-ton replace US refined beet sugar. An increase in the Raw Sugar Tariff Rate Quota may increase the raw sugar supply beyond refining capacity, and an increase in the Refined Sugar TRQ may not provide sugar of the quality or in the packing or conveyance required by end users - much less from audited/approved suppliers. While there will clearly be a need to add additional supply to the US market, care must be taken not to add to inventories sitting in warehouses or in vessels and trucks on the east and west coasts and along the Mexican border while shortages are felt in the middle of the country.
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.