Kingsman Miami Sugar Conference NAFTA Sugar Market In search for a better way. September 11 th, 2014

Transcription

1 Kingsman Miami Sugar Conference NAFTA Sugar Market In search for a better way September 11 th, 2014

2 Disclaimer This presentation (the Document ) has been prepared by a representative of Louis Dreyfus Commodities ( LDC ) and the information the Document contains is current as at the date the Document was prepared. No representation or warranty, express or implied, is made, and no liability is assumed by LDC, its shareholders, or any of its advisors, or their respective affiliated companies or directors, officers, employees, consultants or advisors, with respect to the exactness, reasonableness, authenticity, validity, or accuracy of any information, statements, forecasts (if any), opinions or comments contained herein (the Information ), the fitness for any specific purpose of such Information, or that any Information remains unchanged in any respect as of any dates after the Document was prepared. Any Information contained in the Document is in summary form and does not purport to be complete. Any presentee/recipient of this Document must make (and will be deemed to have made) their own independent evaluation of the relevance and adequacy of the Information contained herein. Accordingly no express or implied reliance may be claimed at any time by the presentee/recipient regarding the Document or the Information contained therein. 2

3 Agenda Audience Participation > 1 Trillion USD / year USA federal budget deficit Federal reserve assets at 3 Trillion USD and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention 3

4 The World Trade Organization definition of Dumping What is dumping? > 1 Dumping Trillion USD is, in / general, year USA a situation federal budget of international deficit price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country Federal reserve assets at 3 Trillion USD and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention 4

5 Free Trade? > 1 Trillion USD / year USA federal budget deficit Federal reserve assets at 3 Trillion USD and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention The cases highlighted in yellow are cases where exports are priced below domestic market parities. Dumping is worse / more prevalent in white sugar than in raw sugar. 5 LDC internal assessment some omissions possible

6 What does the USA have in common with Saudi Arabia, Iraq, and Syria? > 1 Trillion USD / year USA federal budget deficit Federal reserve assets at 3 Trillion USD and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention The USA Free Trade Agreements with Mexico and other Central American countries put it into a relatively unique position vis-à-vis the other large deficit countries 6

7 Conclusion: Sugar trade barriers and dumping are a way of life Get used to it... > 1 Trillion USD / year USA federal budget deficit Federal reserve assets at 3 Trillion USD and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention 7

8 Agenda Audience Participation One > 1 Trillion of the worst USD / jobs year in USA the sugar federal world budget deficit Federal reserve assets at 3 Trillion USD and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention 8

9 Long Term balance sheet (USA) The USDA attempts to manage stock levels at between 13.5% to 15.5% of total use. However, volatility in exports from Mexico since 2008 is making its life much more difficult When required supply is near minimum TRQ levels (1.37myn strv including raws, whites, and trade agreements) it is near impossible for the USDA to manage to within a 2% (242k strv) range. We are heading into a period where the marginal ton is more likely to be additional TRQ allocations - - i.e., the program will become more under the USDA s control than in recent years - - but only if 9 there is a clear deal with Mexico

10 The USA the most volatile sugar market on the planet The result is volatility across four fronts: World market base, inflated in recent years by Brazilian cost of production nearing that of the USA Premium of the #16 over the #11 needed in order to ration or accelerate supply into the USA As Mexico exports nearly as much direct consumption sugar to the USA as an entire refinery supplies, the on/off nature of its exports creates volatility in the bulk refining margin as well Packaging premiums are equally as volatile much of the Mexican sugar arrives in bag sizes ranging from 2lbs/4lbs/10lbs/25lbs/50lbs/1 ton. The end result is ultimately frustration across all stakeholders including producers, consumers, refiners, distributors, and politicians 10

11 Agenda Audience Participation One > 1 Trillion of the worst USD / jobs year in USA the sugar federal world budget deficit Will Federal business reserve as assets usual at ever 3 Trillion work here USD? and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention 11

12 The Sugar version of Business as usual in Mexico = Imports and Exports to minimize stock fluctuations Source: USDA Late 90s world market exports, limited stocks Pre NAFTA 2000s limited exports, much higher stocks Post NAFTA implementation back to old habits 12

13 The big dump... Except during a brief window after the CVD/AD case was filed (March 28 th, 2014), the Mexican domestic market has consistently been above the level at which sales were being made to the USA. During the two year period Oct12/Sep14, Mexico exported approximately 3.6myn mts to the USA (37% for direct consumption, 63% for further processing) and 800k mts to the world market. More was planned to the world market during 2014, but the USA market returns proved too tempting to ignore. In response to pressure originating from the AD/CVD case, the Mexican government has contracted another 575k mts to the world market for January-September 2015 period. 13

14 Two divergent outcomes: Scenario #1 business as usual Increased incorporation of HFCS in Mexico which in turn shrinks Mexican sugar demand Continued uptrend of Mexican sugar area as the best paying crop is sugar at 25cts/lb domestic price Increased beet sugar production as US demand grows (i.e., increased domestic quotas) => Recurring issue of extreme volatility and occasional Mexican oversupply into the USA 14

15 Two divergent outcomes: Scenario #2 fair trade Continuing trend of sugar consumption growth in the USA Growth in the domestic beet industry as demand allows under the marketing allocations Modest increase in the import gap while finding an arrangement whereby the Mexican industry does not impose the world market business as usual upon the USA => A manageable, no cost program that the USDA can manage fairly for all stakeholders 15

16 The NAFTA sweetener market now rests at a defining moment which will influence the three industries for years if not decades Option #1 Option #2 > 1 Trillion USD / year USA federal budget deficit Federal reserve assets at 3 Trillion USD and growing Rising crude oil / inflationary pressures Versus a Brazilian currency policy based on intervention Conclusion: be prepared for the situation to evolve in either direction 16

17 Thank you