U.S. domestic sugar sharply lower for 2023-24 crop amid drought conditions

12-Sep-2023 (Midland, Michigan)

USDA today released its September World Agricultural Supply and Demand Estimates Report (WASDE), highlighting significant changes in domestic sugar supply set to affect the U.S. sugar market for the upcoming 2023-24 crop cycle which starts next October 1st.

For the last several months, news of continued drought-like conditions has persisted in key growing regions (for both beet and cane). Fortunately for the beet sugar growing areas in North Dakota and Michigan, for example, timely rains in July/August and the arrival of cooler temperatures have been favorable towards improved agricultural yields per acre and higher sugar content.

Based on these improvements, today's USDA forecast for beet sugar production covering the coming crop was increased by 127,175 metric tons (refined value) to a total revised estimate of 4.429 million metric tons (refined value), close to record annual production.

The harsh news on the cane sugar end is quite the opposite, especially in the U.S Gulf region. Louisiana's cane sugar production estimate was drastically reduced today by a whopping 315,400 metric tons (refined value), from an initial & potential-record of 1.741 million metric tons (refined value) to a now adjusted 1.425mmt (refined value).

USDA did adjust 2023-24 supply for higher beginning stocks by an additional 124,000 metric tons (refined value) which is welcome news to buyers. This is inventory that will carry over as additional supply to the following year due to lesser consumption during the past spring and summer months.

Moreover, minor adjustments to sugar consumption were equally factored in for next year (sugar use was lowered by 42,400 metric tons/refined value) which helped bolster supply.

However, on the flip side, Mexico's import quota was slashed by 171,265 metric tons (refined value) as required under the US/Mexico Suspension Agreements to arrive at the required 13.5% stocks to use ratio in the September report. The adjustment takes into account estimated softer demand again for sugar next crop year and forecasted increases of sugar imported via non-quota programs (paying full Tier- 2 import duties).

With Mexico expected to struggle to reach targeted sugar production numbers (Mexican government is forecasting 5.8 million metric tons refined value), we are of the opinion that Mexico's forecasted imports will eventually be less than currently forecasted, and the potential Mexican shortfall could be made up with higher amounts of imported sugar coming from the world market/non-traditional origins paying second-tier import duties.

The total net effect in sugar supply for the upcoming year, when taking all of the above adjustments, is 200,000 metric tons (refined value) LOWER as compared to last month's estimate, equivalent to -1.8%.

Based on these ongoing trends, plus continued strength in the world sugar futures markets, U.S. raw sugar futures prices have also seen a recent rally, with most of the 2024 positions trading close to 43.00 cents per lb. (CIF-duty paid, Refinery).

U.S. coastal sugar refiners have been actively sourcing more imported raw sugar (with prices going correspondingly higher) as the make up for the domestic shortfall. And with raw sugar prices climbing, the industry is also forecasting revised (higher) prices for cane refined sugar soon. Especially if the world market continues to climb, as many trade participants expect.

With U.S. beet sugar supply practically sold-out for the coming year, uncovered buyers have extremely limited supply options at this time. The sugar market will continue to be driven for the foreseeable future by (a) cane-sugar pricing dynamics established by the larger domestic coastal refiners and (b) via increased imports of refined sugar from offshore (through a combination of Mexico, Central America and other world market/non-traditional origins).

The past resistance to non-traditional sugar origins by US buyers has now yielded a much larger & fundamental question: How does the market create more supply liquidity for itself, if the same market does not give the opportunity for new/non-traditional supply to come online?

The market always finds a way to fix itself - it's only a matter of time before we see the necessary adjustments take hold.