Back in May, we reported plans for an Everglades restoration project in South Florida involving the sale of sugar land to help reestablish the natural habitat of the wetlands.

In short, the South Florida Water Management District (SFWMD) was to purchase over 72,000 acres of land from U.S. Sugar as part of a comprehensive restoration project.

The total plan, which has been under negotiation for well over a year, involves over $2.2 billion and 110,000 additional acres.

Last week, Reuters reported on a Palm Beach County Circuit decision that will help enable this preliminary sale of sugar land.

According to the ruling, SFWMD will be permitted to sell certificates of participation worth upwards of $650 million to partially fund the deal.

U.S. Sugar, the nation's largest sugar-cane grower, was surprisingly eager to make the transaction, no doubt to the delight of environmentalists, administrators who oversee water operations in the state of Florida, and Florida's Governor Charlie Christ.

Opponents however, such as the Miccosukee Tribe and another sugar company called Florida Crystals, criticize the plan as inefficient and ineffective.

According to Reuters,

"The opponent call the plan a waste of taxpayers' money that will actually slow restoration of the Everglade wetlands, a distinctive ecosystem that is home to 68 endangered species."

A spokesman for the water district expects an appeal of this preliminary victory.

It's interesting that this is happening at a time when sugar prices are climbing, global sugar supply is reportedly dwindling, large food manufacturers are begging for the ease of import quotas on sugar, and...

Cooperative Purchaser's has the best wholesale sugar prices on all types including:

• granulated sugar
• brown sugar
• powdered sugar

Regardless, neither the Everglades nor the sugar industry is likely to see this project take off at the speed of an airboat.

Should the project get the full go-ahead, terms are in place for a gentle transition.

It's been two weeks since several large food manufacturers collectively petitioned the US Department of Agriculture to increase the sugar import quota for 2008/2009 and the next fiscal year.

As previously reported, raw sugar futures have reached 28 year highs recently, based on:

• less than desirable climate conditions for the world's top sugar growers
• projected high import demands for India

In a letter to the Secretary of Agriculture, 23 companies and associations expressed alarm over the existing sugar import quota. They feared that if not lifted swiftly, the import quota would likely cause:

• job losses
• higher retail sugar prices
• sugar shortages for the near future

In response, the Department of Agriculture promised to assess the market and appropriately respond to the concern.

A recent Flex News article describes that despite the strenuous effort on the part of the petitioners, the US Department of Agriculture reported this week that it will NOT likely increase the sugar import quota for the current year.

According to the article, the department feels that the sugar supply will be sufficient for the remainder of this marketing year, which ends on September 30, 2009.

It says, "On Aug. 12, USDA said U.S. sugar stocks at the end of September will be 1.252 million short tons (raw value) - a carry-over equal to 11.2 percent of use."

Each summer, the USDA must estimate how much sugar the country needs for the new fiscal year, which begins on October 1.

Subsequently, the USDA must set an "overall allotment quantity" for domestic and imported sugar marketing. The tariff for imported sugar is adjusted accordingly.

In an e-mail to Reuters, Agriculture Undersecretary Jim Miller said,

"At the current time, it appears that the domestic market will be adequately supplied through the end of the marketing year, which ends September 30, 2009, at which time both new domestic sugar production will be available and imports under the 2009/10 Tariff Rate Quota will begin."

Miller also stated that sugar supply and demand for the next marketing year (2009/2010) will remain under close watch.

It appears that the Department of Agriculture has only responded to the immediacy of the situation. Despite the urgency of the letter which implored complete resolution, the idea that the US "could virtually run out of sugar" will remain to be seen.

Ironically, using the concept of 'virtual' in this case, magnifies the implicit dichotomy.

On one hand, the government views the sugar shortages as 'simulated and not yet real.'

On the other hand, the petitioning organizations view the shortages as 'very near and practical.'

Was it intentional?

Either way, we continue to be aware that wholesale sugar prices and wholesale brown sugar prices will be changing in the next marketing year.

In keeping up with the global sugar situation, reports of the global response to the unfavorable sugar output for 2009/2010 continue to stir in.

With India likely to encounter the worst repercussions from sugar supply and demand issues this year, the government is taking action.

Currently, the Indian government regulates the amount of sugar released into the domestic market by Indian sugar mills.

On Wednesday, it was reported that the Indian government may consider lifting these restrictions to help manage rising sugar prices, which have surged over 58.6% in 2009 (to 2914 rupees, or $59.80 per 100 kg).

In addition, the Indian government may demand that domestic sugar mills increase their supply of low-priced sugar for public distribution.

At present, sugar mills are required to sell 10% of their output to the government at reduced prices for issue to the impoverished (... are you thinking of Slumdog Millionaire, too?).

The new requirement may increase this number to 20%.

Other reports of government intervention include limitations on sugar stores that can be accumulated by large food, beverage and pharmaceutical companies, in an effort to "discourage hoarding."

The government may limit these companies from stocking more sugar than is needed for "15 days of consumption." As a result, the companies would likely import sugar to "support rapid growth."

In the interim, farmers in many countries (including Australia, China, Pakistan, Russia and Indonesia) have been planting more cane to "bridge the projected deficit" in sugar supplies.

The problem is, crops planted now can't be harvested for 18 months, so these efforts won't provide any immediate relief.

Commodity strategist at Commonwealth Bank of Australia, Luke Matthews, said,

"We do expect a significant production response and when that production response comes through, we'd expect prices to come off.

"But in the meantime, prices certainly have room to move higher."

With so much attention surrounding this commodity, be sure to keep your eye on wholesale sugar prices as they change.

Cargill has come a long way, since the American frontier in 1865, as an international provider of food and agricultural products.

The privately-held company (with an amazing history [.pdf]) also offers financial and risk management services around the world including programs that help farmers perfect and protect their crops.

Cargill's product list includes, but is not limited to:

• Salts
• Starches and derivatives
• Sweeteners
• Beverage ingredients and flavorings
• Flours and grains
• Citrates

(Note: Cooperative Purchasers distributes many of these fine food and beverage ingredients from Cargill and other processors... see the above links.)

And this year, Cargill has seen one of the best years in company history, second only to last year (Fiscal 2008).

For fiscal year 2009, Cargill earned an impressive $3.33 billion (a 16% decrease over 2008's $3.95 billion).

In addition, revenues were $116.6 billion (3% drop) and cash flow operations were $6.7 billion (6% decrease).

At present, Cargill has 75 businesses organized around five major areas:

• Agricultural services
• Food Ingredients and applications
• Origination and Processing
• Risk Management and Financial
• Industrial

Of the five, the industrial segment was the only one that beat last year, however the company's business model succeeded despite the decline in global economic growth.

Greg Page, CEO and company chairman, said,

"In the second half, earnings slowed considerably as the world economy contracted for the first time in six decades. In the end, the net effect was the second-best year in our company's history."

Reported factors that contributed to this year's success revolve around Cargill's global investments, including:

1. opening/expanding processing facilities (canola, cocoa, pam, soy and biofuels) in Brazil, Canada, China, France, Ghana, and the US.


2. increasing base-level spending to keep processing plants in pristine condition, which helps facilitate food safety and energy efficiency.

Page charges Cargill's profitability to business diversity and skilled planning.

"We acted early to reduce the costs and decrease the use of debt and operating working capital.

"Our trading teams anticipated price volatility correctly in both the run-up and the run down in commodity values.

"We kept the focus on being a reliable supplier to our customers - helping them meet the challenges of these difficult economic times."

Like many companies, Cargill is cautious but optimistic about economic growth in the current global economy and recognizes that recovery will take time.

Cargill remains committed to serving their customers and improving health and nutrition through quality food ingredients.

Imagine a United States temporarily void of sugar supply... not too sweet of a thought.

The Wall Street Journal (WSJ) reported yesterday that some of America's largest food companies feel this could be a very real situation.

They foresee big problems for the American sugar market: an effect of the current global sugar market and US import policy.

At present, current import quotas for the US limit the amount of tariff-free sugar that can be imported each year.

In a collaborative effort, some of these large food manufacturers have drafted a letter about sugar supply [.pdf] to Thomas Vilsack, US Agricultural Secretary, pleading for the current administration to ease import restrictions on the commodity.

In the letter, they fearfully project that the US "will end the next fiscal year with less than 13 days' worth of sugar on hand," which could put the nation at risk to "virtually run out of sugar."

They reinforce their position by presenting potential effects:

"Without a quota increase, consumers will pay higher prices, food manufacturing jobs will be at risk and trading patterns will be distorted."

According to the WSJ,

"...the letter is the latest salvo fired in a long-simmering dispute between US food companies and the sugar industry over federal policy that artificially inflates the domestic price of US produced sugar in order to support the incomes of politically savvy [sugar farmers].

"Most years, the price food companies pay for US sugar is twice the world level."

In a previous post about sugar prices, the issue is pressing because both US and world sugar prices, as well as sugar futures, have risen to record highs this year.

Heavy rains have affected Brazil's crops and drought conditions have affected India's crops.

Brazil is also rerouting much of it's cane crops to making ethanol fuel.

In addition, India has emerged as the largest sugar consumer, sparked by the growing population.

The WSJ states, "Prices of sugar futures contracts have risen 95% so far this year, hitting a 28-year high in recent days."

For the US, American sugar supplies are dwindling and expected to "drop 43% by September 2010."

Well, what do the US sugar farmers have to say about this?

According to America's sugar farmers, the idea of "virtually running out of sugar" is just hype by big business to increase profits.

For most food manufacturers, sugar costs account for a very small percent of input costs, according to a recent report by Andrew Lazar, analyst for Barclays Capital.

The report states that ConAgra Foods, Inc., for example, spends about 1% of input costs on sugar. Hershey, is on the high end of the spectrum, but still only spends around 8%.

A spokesman for the American Sugar Alliance, Phillip Hayes, speaks on behalf of US farmers. He states that US farmers are "absolutely opposed" to easing import restrictions on sugar, projecting that the ease would cause prices received by US farmers to decrease, causing problems for the US sugar farming scene.

Jack Roney, the American Sugar Alliance's chief economist, explains that,

"...each one cent drop in the price of sugar costs US farmers about $160 million.

"We take offense at any notion of reducing producer prices for sugar having any benefit for consumers, because historically we've never seen any pass-through of lower commodity prices of ingredients.

"It really is a profit-increasing opportunity for user companies."

How has the current administration reacted to this situation?

So far, with caution.

According to the WSJ, the Agricultural Department released a statement saying it will, "continue to review market conditions to ensure... an appropriate safety net for growers," as well as, "a stable supply environment."

In a sugar-industry meeting early this month, Agricultural Secretary, Jim Miller, "wouldn't rule out a quota increase in the future," but is aware of the political ramifications from sugar farmers who have a "big voice in Washington."

So, to recap in a few sentences:

One side feels that these import quotas on the sugar commodity are necessary to protect American producers, which will ultimately benefit the American market.

The other side feels that the import quotas on sugar are detrimental to American food industry, and the expense will ultimately be incurred by the consumer.

What's the solution to this issue of protectionist economics surrounding sugar?

Guess it just depends on which economic ideals resonate best with you... and how much you're willing to pay for a chocolate bar.

Sara Lee Corp. (NYSE: SLE) reported fourth quarter and Fiscal 2009 results in a news release early this week.

The company markets and manufactures many brand-name food, beverage, and meat products, using the finest quality food ingredients.

Sara Lee Corp. is organized into six businesses:

• North American Retail
• North American Fresh Bakery
• North American Foodservice
• International Beverage
• International Bakery
• International Household and Body Care

Here's an quick overview of some important benchmarks for the company's success in Fiscal 2009.

Benchmark	2009	2008	% change	Comments
Net Sales	$12.9 billion	$13.2 billion	- 2.5%	adjusted net sales up 2.7%
Net Income (Per Diluted Share)	$364 million ($0.52)	loss of $79 million (loss of $0.11 per share)	+ 1.9%	adjusted EPS $0.84 from $0.82
Operating Income	$713 million	$260 million	---	adjusted operating income up 1.9%

Note: Detailed fiscal metrics for the corporation and all six divisions are highlighted in the news release.

Brenda C. Barnes, chairman and chief executive officer seems satisfied with the full-year results and her comments reflected the company's achievements despite the tumultuous economy.

"I am pleased to report that we've just completed our second consecutive year of strong overall performance, despite tough economic and competitive headwinds.

"Our 2009 results reflect the significant progress we have made in transforming Sara Lee and focusing the company on core businesses with large and growing brands in important categories."

Earlier this year, Sara Lee discussed strategies for growth and optimization including further development of international markets and cost savings measures. Seems like they are making good on their promises.

Barnes continued by forecasting future success for Sara Lee Corp.

"We've built a solid foundation and will continue to invest in the future. We are confident that we will continue to execute our growth strategy in fiscal 2010 and in the years to come."

Common sense dictates that the food industry must thrive in most economies. Fiscal 2009 data (for many companies) is in agreement.

Sara Lee Corp. is certainly one of those companies. Despite current global economics, the company: remains commited to the brand, delivers shareholder value, and is poised to grow.

Archer Daniels Midland Company (NYSE: ADM), one of the leading food ingredients processors, reported "solid full-year results," for fiscal 2009 in a news release on August 4.

ADM produces food ingredients, as well as animal feeds and biofuels, that manufacturers use in their products. The company's goal, according to their mission statement is, "To unlock the potential of nature and improve the quality of life."

Despite decreased fourth-quarter earnings, which were attributed to the "global economic downturn," ADM remains focused on the corporate mission and plans. Chairman of the Board and Chief Executive Officer Patricia Woertz remains optimistic as demand outlook is improving.

Woertz responded to the results by saying,

"In the fourth quarter, we felt the impact of the global economic downturn, as we concluded a year of good performance overall. In this downturn, we used our strong balance sheet and cash flow to make strategic investments and build long-term value."

The following is some key financial data from the news release:

(Note: Fiscal year ended June 30, 2009)

• Net earnings for the year decreased 5%, from $1.8 billion to $1.7 billion ($2.79 per share to $2.65 per share).


• Net sales and other operating income for the year decreased 1%, from $69.8 billion to $69.2 billion.


• Segment operating profit for the year decreased 29%, from $3.4 billion to $2.5 billion.


• Net earnings for the fourth quarter decreased 83%, from $372 million to $64 million ($0.58 per share to $0.10 per share).


• Net sales and other operating income for the fourth quarter decreased 24% to $16.5 billion.


• Segment operating profit for the quarter decreased 73% to $208 million.

After reading this data, the results may not seem to be as "solid" as ADM would like, however, the first three quarters of 2009 were on target.

ADM justifies their position with economic statistics and information relevant to Q4 results.

The company cites decreased global demand for oilseeds processing, higher net corn costs with weak ethanol environment, and weaker global demand for agricultural commodities, as culprits in the Q4 fiscal performance.

ADM also emphasizes the success of their strategic investment activities for 2009. Goals planned and achieved include:

1. building out major projects, including several co-generation plants, and cocoa processing, renewble plastic, and propylene/ethylene facilities.


2. improving processing operations with capacity expansions and selective aquisitions.


3. expanded the global origination and transportation network, adding silos and barges as well as oceangoing vessels.


4. formed strategic joint ventures, including adding sugarcane to its feedstock base and constructing two sugar and ethanol plants.

With these benchmarks accomplished, ADM is positioned for success in 2010.

Woertz asserts, "As we look ahead, we see signs of improving demand in the various food, feed and fuel markets we serve. We remain functionally strong and well positioned to capture value as global markets recover."

Reuters reports that sugar prices rose to a record high and ICE raws rose to a 3.5 year high today, Monday, August 3, 2009.

Both, prices and futures, are directly impacted by:

• the global deficit (9 million tonnes) in sugar supply from 2008/2009
• predictions about global sugar demand
• crop problems for the world's top two sugar growers (India and Brazil)

El Niño's climate conditions have created an imbalance which has deprived India's sugar crops of much needed precipitation.

In addition, India is anticipated to be a the world's greatest sugar consumer this year. If the crops don't do well, India will have to rely even more on import.

What's more, the rain water that India needs, Brazil seems to be getting.

In this case, one country's treasure is another country's junk... and this is more than just a proof by logic, as evidenced by the numbers (read on).

Hussein Allidina, head of commodity research at Morgan Stanley, said,

"The lack of precipitation in India increases the likelihood that 2009/10 production estimates prove too optimistic."

Currently, the ICE front-month sugar contract is at 19.43 cents per pound.

Allidina also hypothesises that, "...raw sugar futures will soon break above $0.20, a 28-year peak."

Analyst Nicholas Snowdon, of Barclays Capital Report, is in agreement.

"Our current target on the March 2010 contract is 22 cents per pound, but this may prove conservative if El Niño lives up to its reputation."

Looks like we can bet on that.

According to the National Weather Service,

"El Niño conditions will continue to develop and are expected to last through the Northern Hemisphere Winter 2009-2010."

Bottom line is, there is nothing to do but ride El Niño's waves and continue to buy and sell sugar.

The obvious supply and demand relationship for sugar will be actualized, along with the pricing that accompanies it.