Sugar Supply vs. Sugar Import Quota: A Partial Solution

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.