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MARCH 2020 NAFTA MARKET UPDATE

March’20 USMCA Sugar Market Update

Tuesday March 10, 2020

The USDA took a huge step today to reframe the conversation around Mexico’s access to the US market under the amended Suspension Agreements and Mexico’s ability to meet US needs. One could view the report as also accelerating the conversation around addressing what appears to be a related 768,000-ton deficit in the US balance sheet. If a WASDE report can rise to the level of “jaw dropping,” today’s report hit the mark.

The estimate of Mexican sugar production for FY’20 was slashed from the 5.672 Conadesucaapproved estimate published in the February WASDE to 5.200 million tonnes tel quel today. This is a number we have thought of and consider to be well within the range of possible outcomes, but not a number we had not yet screwed up the nerve to acknowledged in our official estimate of 5.250 to 5.500 million tonnes. As all but ~30,000 tonnes of Mexico’s FY’20 exports are expected to ship to the US, the estimate of exports to the US was lowered by 552,000 short tons raw value, matching the 472,000 tonne tel quel reduction in estimated production.

For background, Sugar production in Mexico continues to lag both last year and official expectations -meaningfully. Based on the data from Conadesuca covering the crop’s progress through the end of February, sugar production is 660,119 tonnes tel quel shy of last year’s production through the same point. On February 5th, Conadesuca released its second estimate of the 2019-20 crop, lowering its production estimate by 100,000 tonnes to 5.672 million tonnes. Since the beginning of February, production has lagged the revised estimate of weekly production by 229,102 tonnes, as depicted below. Through end-February, area harvested in Mexico was 5.84 % lower than last year; the amount of cane crushed from that area was 16.1 % lower than last year; and the amount of sugar produced from that cane was 20.6 % lower. The second estimate of the crop of 5.672 million tonnes represents an 11.73 % reduction from last year’s 6.426 million tonne output.
Lastly, the end of February marked essentially the mid-point of the FY’19 crop – the 3.205 produced equated to 49.88 % of the total 6.426 million-tonne crop. If the current crop production turns out to have been 49.88 % complete at the end of February, total production would be 5.103 million tonnes. Looking at the 2018-19 crop, which totaled 6.010 million tonnes, 53.37 % of the crop had been produced by March 2nd, 2018. If the current crop turns out to have been 53.37 % complete at the end of February, the crop would be sub-4.800 million tonnes. The USDA estimate was a surprise to see in print, but it is easily defensible.

The Sweetener Market Data report released on March 6th and covering the October’19January’20 period showed all of the symptoms of the production losses that started this fall and continue to progress through the processing campaigns. Beet sugar production through January 31st totaled 2.509 million tons, 390,052 tons lower than last year at the same date. In this context it makes sense that the FY’20 beet production estimate was trimmed by 127,000 tons to 4.317 million tons. The estimate is now 622,000 tons lower than the FY’19 estimate. The loss of an estimated 127,000 tons of refined beet sugar serves to heighten sensitivity to remaining US refining capacity, if a further complication was needed.

There were no changes made to the estimate of cane production or to the demand end of the S&D, though 50,000 tons were added to the estimate of high tier imports, bringing the total to 150,000 tons.

Soon the DOC will determine Mexico’s Final Export Limit, using today’s WASDE as a template and solving for a 13.5 % ending stocks/use ratio. By our calculation, Mexico’s Export Limit should be 1.933 million short tons. The announcement of the increase in Mexico’s Export Limit (200,000 tons of refined sugar, sent under separate cover earlier today) was dated prior to the WASDE report. Based on the language in the DOC announcement we believe that Mexico’s Export Limit will break down as follows: the total Export Limit of 1.933 million tons includes 300,000 tons of refined-only increase quantity with no shipping patterns and excluded from the 70/30 “other sugars”/refined calculation. Mexico will be allowed to ship no more than 789,900 tons of refined sugar poling at or above 99.2 degrees (489,900 tons +100,000 tons + 200,000 tons) and 1.143 million tons of “other sugars.” In the coming days and weeks consultations will be held between the US and Mexico to determine how much of the Export Limit Mexico will be able to fulfill. And in what form it can be shipped.

Mexico will be given an Export Limit 768,000 tons higher than the 1.165 million-ton export estimate in today’s WASDE, and Mexico can be expected to defend a much higher export availability than is reflected in the report. Mexico’s crop remains largely unknown; Mexico could elect to carry out lower ending stocks; and Conadesuca’s estimate of IMMEX exports is 65,000 tonnes lower than the USDA’s estimate. These factors could add 250,000 to 500,000 tonnes to Mexico’s export availability compared to today’s report. The real question is, will the USDA have enough confidence in its own estimates to increase US import availability via raw and/or refined TRQ increases - even if Mexico refuses to relinquish its right to fulfill a large portion of its Export Limit? The timing and size of an eventual TRQ increase hang on the answer.

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.

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