Spot sugar market facing stress

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VAIL, COLO. – Stress in the form of tight supplies and high prices continues in the spot sugar market due to a combination of limited beet sugar supplies, logistical issues and other factors, speakers say of the 37th International Symposium on Sweeteners here on August 1st.

“Things don’t run like a well-oiled machine,” said Barbara Fecso, PhD, Branch Manager, Commodity Analysis Branch, Economic and Policy Analysis Division, Production and Conservation Business Center agriculture, US Department of Agriculture.

For an orderly market, beet processors must operate at full capacity, cane refiners store raw materials and produce refined sugar as needed to meet orders, intermediaries such as distributors or wholesalers buy sugar at the start of the year in hopes of selling at higher prices to fill the gaps later in the year, and sugar users (food manufacturers) primarily located near population centers purchase sugar early and take delivery quarterly or monthly, with processors allowing them to move supplies later if they don’t need as much sugar as expected or withdraw contracted supplies earlier as needs exceed expectations .

But spot sugar prices are near or above 50-year highs, some users and refiners are importing high-duty sugar due to lack of supply in the domestic market, and sellers are demanding buyers accept deliveries of sugar at contractual times or risk losing it as the seller can easily resell the supply at a much higher value than originally contracted.

The market began to “collapse” when two beet processors declared force majeure due to weather-reduced harvests in late 2019, Ms Fecso said. The current stress in the market is also “beet driven” due to the weather, she said. Beet processors sold off early to regain market share lost in the 2019 actions, then exited the market, putting pressure on the cane sector and leading to an increase in high-duty sugar imports. Some cane refiners then also exited the market partly due to a lack of railcars to ship refined sugar. Buyers, required to pick up the shipment of beet sugar at specific times, took deliveries but in some cases left the sugar in sealed railcars due to a lack of other storage capacity, creating thus a shortage of wagons and exasperating already stressed logistics.

Ms. Fecso noted that the USDA has taken more than 20 actions adding more than 2 million tons of sugar to the market since 2019. Increases in raw sugar have been favored because raw materials can more easily be stored than refined sugar. , and in today’s market, if US refiners can’t get railcars for refined sugar, “how can foreign suppliers do that?” »

Market disruptions typically take three to four cycles to correct themselves, Ms. Fecso said, adding that “high prices are the best cure for high prices.”

Randy Green, director of Watson Green LLC and consultant to the Sweetener Users Association, also noted that supply chain issues are contributing to the current sugar market crunch. In addition to problems with rail deliveries, he cited problems in the trucking industry, labor shortages, and problems with the supply of raw materials and manufacturing supplies as affecting sugar and other industry in general.

Mr Green said he spoke with major buyers and analysts to gather sugar-specific supply chain issues. Some sugar users were experiencing slow production lines due to a lack of sugar supply, although most were not forced into shutdowns. Deliveries of contracted supplies varied and some experienced delays or did not receive deliveries. They also discovered the price of freight and some were also unable to order above the previously allocated amounts that were applied monthly by the seller.

Overall, sugar users said sugar suppliers did a “pretty decent job,” some “didn’t miss a beat,” and they gave the industry a “C” in logistics and freight management. Some users have also noted worse experiences with other ingredients, including high fructose corn syrup, dextrose, colors, and flavors.

Some users found management more receptive to holding larger inventories rather than just-in-time inventory management, which many said was not favored even before the current market situation. Order times have increased across the food industry, “much more for some products than for sugar,” Green said.

Mr Green said government actions that previously led to “adequate supply at reasonable prices” as envisioned by the US sugar program may no longer achieve that goal, and that using the ending inventory ratio sugar/use to measure adequate supply “is being skewed by various supply factors, or is no longer useful and should be replaced by another measure. The USDA has targeted a ending inventory-to-sugar utilization ratio of between 13.5% and 15.5%, with supplies of 13.5% and above deemed adequate.

Continued operation of the market with high prices will lead to demand destruction, further encourage imports of sugar-containing products, and could lead to a permanent reliance on high-level imports, which could cost US jobs. United,” Mr. Green said.

Even though the USDA has taken several positive steps to increase sugar supply, “when supply chain issues create major bottlenecks, the USDA should put more emphasis on (sugar) inventory rather than less,” Green said.

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