USDA Outlook Forum February 24, 2012 Integration of Two National Sugar Markets Competing Interests of Surplus and Deficit Producers Two Countries One Market David Berg American Crystal Sugar Company
Topics Trade integration Product flows & prices Policy integration 1/1/08 thru present Future scenarios
Thousand Metric Tons, Raw Value 4,000 3,500 3,000 2,500 2,517 U.S. Sugar: Total Imports 1996/97-2011/12 3,381 3,124 3,012 2,796 2,585 2,377 2,000 1,500 1,962 1,654 1,484 1,443 1,393 1,570 1,588 1,905 1,887 1,000 500 0 Data Source: USDA; 2011/12 forecast TRQ: WTO & CAFTA Imports for Re-Export Above-Quota (except Mexico) and Circumvention Imports from Mexico 302-10
1,800 1,600 1,400 Mexico: High Fructose Corn Syrup Consumption 1995/96-2011/12 -- Thousand Metric Tons, Dry Weight-- 1,418 1,610 1,635 1,200 1,000 800 600 400 402 409 480 580 600 355 667 698 782 653 200 0 116 263 130 135 Data Source: USDA; 2011/12 forecast. 302-17
Trade Flows
Trade Flows
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 U.S. and Mexican Wholesale Refined Sugar Prices Monthly Averages, cents per pound, 2000-2012 58 53 48 43 Correlation: 83% Mexican Wholesale Refined Sugar U.S.-Mexican free trade in sweeteners began January 1, 2008 51.75 47.02 38 33 U.S. Wholesale Refined Sugar 28 23 18 Data Source: USDA/ERS. Mexican sugar -- Mexico City, SNIIM-ECONOMICA; U.S. sugar -- Midwest markets. Prices through January 2012. 31A
U.S. & Mexican Sugar Prices: Raw and Estandar Monthly averages, cents per pound, 2000-2012 46 41 Correlation: 88% U.S.-Mexican free trade in sweeteners began January 1, 2008 39.68 36 31 Mexican Estandar 34.69 26 21 U.S. Raw Cane Sugar 16 Source: USDA,ERS. Mexican Prices: Estandar, bulk, Mexico City, SNIM-ECONOMICA. U.S. Prices: Raw -- #16 contract, New York. January 2012. 31A2
Crop size - Mexico Sugar demand - Mexico Mexican Export Mix (Estandar/Refined) IMMEX Substitution Third Country Sugar Price Integration Mexican HFCS demand World Market Trends U.S. Refining Capacity Utilization Trade Agreements - Mexico Mexican Import Decisions Trade Agreements - U.S. U.S. Re-Export Sugar demand U.S. Grower Payments - Mexico Domestic Political Pressure Legislative Mandates Dollar/Peso Exchange Rate Crop size U.S. Cane Crop size U.S. Beet
Import Policy Formulation U.S. U.S.: Avoid the forfeiture of sugar under price support loans, and therefore avoid a cost to the federal treasury Legislative mandates: No cost; Reasonable prices Trade agreements: WTO; CAFTA-DR; NAFTA; Peru / Colombia / Panama Political pressures: Producers; Users; Refiners; Traders; Internal processes: USDA consultation with State, USTR, Commerce, Treasury, OMB, CBP Time constraints: Minimum TRQ before 10/1; No revisions before 4/1 without determination of an emergency Outputs: Raw & specialty sugar TRQs; CQEs
Import Policy Formulation - Mexico Mexico: Avoid prices low enough to destabilize market for sugar cane, or high enough to contribute to inflation of basic commodity Legislative mandates: Minimum price for sugar cane Trade agreements: WTO, NAFTA, Guatemala/Honduras, Nicaragua Political pressures: Cane growers, Users, Mills, Traders Internal processes: National Sugar Committee; Department of Economy; Department of Agriculture Time constraints: None Outputs: Economia establishes TRQ
Import Decisions 2008 to Present (Table Courtesy LMC International) 23 Import Adjustments Totaling 4,612,002 Tons
Complements & Conflicts Complements (What s working): WASDE includes both U.S. & Mexican components Moving towards reliable data on Mexican production and consumption Improved consultation between governments Conflicts (What might work better): Each country s objectives may be different Clarification & harmonization TRQs in Mexico unpredictable; May ignore the US segment of the integrated market Should be based on objective criteria and reliable data about conditions in both the US and Mexican markets.
Future Scenarios How things might go wrong: Lack of consultation Unreliable crop & demand data Historical & projected Lack of coordination Failure to communicate objectives Failure to communicate intentions Failure to identify options for action e.g. TRQ vs. Export Restrictions
Future Scenarios How things can go right: Improve & share data Direct, ongoing consultation Crop & market analysis Policy formulation Policy implementation
Summary & Conclusions Market integration has occurred Competition for end user volume Price Logistics are in place Administration of import policy is complicated & sensitive Both governments need to be engaged real time
Coeur d Alene Idaho August 3-8, 2012 www.sugaralliance.org