February ‘20 NAFTA Sugar Market Update

Thursday February 13, 2020

The US sugar market has been very orderly over the past month. Refined prices have flat-lined at a reported 44.00 for both beet (FOB Midwest) and cane sugar (FOB refinery) – up more than 25 % from levels seen prior to the weather events of late October through mid-November. Raw sugar prices continue to see carry-like discounts for the nearby futures (May at 40 points under July) and the market has seen good sell-side liquidity as Mexico executes against its greatlyexpanded Export Limit. Even after a 110,000-ton reduction in Mexico’s export limit seen in the February WASDE estimated FY’20 imports from Mexico are 72 % higher than seen in FY’19.

Looking at the USDA/FSA Sweetener Market Data released last week, a few things stand out. Symptoms of the crop damage that occurred in the fall were apparent: Beet sugar production during the fourth calendar quarter was 270,957 tons lower than the prior year and cane sugar production was 211,287 tons lower than the prior year. As FY’20 beginning stocks were 225,353 tons lower than last year, total supply on 12/31/19 was 651,707 tons lower than the prior year (imports were 55,890 tons higher, providing some relief). As total deliveries were estimated 2.9 % lower (89,61 tons) at 2.981 million tons as of 12/31/2019, and through the magic of a 71,785ton negative miscellaneous adjustment, ending stocks on 12/31/2019 were 485,140 tons lower than a year earlier at 3.893 million tons – a drop of 11.1 %

The WASDE data released on Tuesday by USDA was unremarkable. On February 5th Conadesuca reduced its estimate of 2019-20 production by 116,844 short tons raw value. The US Trade Rep reallocated an estimated 78,000-ton raw sugar TRQ shortfall on February 6th and, based on this, USDA reduced the estimated FY’20 shortfall to 40,000 tons. These changes were incorporated into the S&D, resulting in a net 40,000-ton reduction in ending stocks and a 12.4 % stocks/use ratio for FY’20.

For the near term the main factor impacting the US sugar market will be the trajectory of the Mexican crop. As 100 % of Mexico’s remaining exportable surplus is expected to ship to the US, any reduction in Mexican production will translate into lower US imports. In the February WASDE, USDA reduced the estimate of exports from Mexico by 110,000 tons based on Mexico’s export availability. This is based on Mexican production of 5.672 million tonnes tel quel. Based on the February WASDE, Mexico’s export limit would have to have been 140,000 tons higher at 1.857 million tons to achieve a 13.5 % stocks/use ratio. The JSG estimate of the crop is 5.500 million tonnes which, if accurate, would reduce Mexico’s export availability by a further 201,000 short tons raw value, leaving a 341,000-ton hole in the US S&D. Based on the crop data provided by Conadesuca through February 8th, we feel our estimate is justified and will likely be further reduced as more data becomes available.


Mexican production through February 8th (Week 19) is 541,338 tonnes lower than last year’s production at the same date. Last year’s crop was the second largest on record in Mexico at 6.426 million tonnes, and this casts the current year’s underperformance in a misleadingly cheery light. The current year production through Week 19 lags FY’18 sugar production by 600,974 tonnes (total production 6.010 million tonnes) and lags FY’17 production by 572,577 tonnes (total production 5.957 million tonnes). The Mexican crop from year to year has been fairly homogenous through the body of the crop with the tail being the differentiator. This year is a meaningful exception. In fact, the crop is tracking 132,274 tonnes behind Conadesuca’s adjusted estimate through Week 19 to accommodate its 2nd estimate of the crop of 5.672 million tonnes. There is reason to believe things will improve. Most of the crop lies ahead: last year 36.75 of the total crop was in the bin by the end of Week 19, and the two prior crops were 40 % complete. Area harvested is 10.78 % behind last year, so there is potential. The hard facts, however, are that a 5.672 production estimate assumes that just 32 % of this year’s output has been produced by Week 19 (38.9 % was produced on average over the past three campaigns). Just for sport, if one were to assume that the current crop was 38.9 % complete as of Week 19 (in line with the past three crops), total production would be under 4.700 million tonnes. Conditions can of course improve, but as the two charts above depict, over the past several weeks the current crop’s yields (red line) have deteriorated relative to last year’s yields. A lot of things will have to go fantastically well for even out 5.500 million tonne crop estimate to be met.

When the USDA publishes the March WASDE, the US DOC will use the numbers as the template to set Mexico’s final Export Limit based on a 13.5 % stocks/use ratio. Mexico will have to tell the US by the end of March how much of the Export Limit it will be able to meet. The answer to that question will have a dramatic impact on the USDA’s ability to manage US import policy for the balance of the year. Uncertainty over Mexico’s crop size and export availability will translate directly into uncertainty over US sugar supply for the balance of FY’20 – a period already brimming with uncertainty. How and when the USDA addresses the shortfall left by Mexico will be critical to both the raw and refined sugar markets in the US.

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.