US sugar production set for a massive rebound after catastrophic crop collapse

Bay City, MI. - Following the disastrous, frost-driven sugar beet crop failure in the Red River Valley last winter, as well as the disappointing cane production output seen in Louisiana last year, United States sugar producers & marketers are getting ready for a huge comeback in domestic sugar production with the new crop slated to begin October 1. The dramatic increases in domestic sugar output will not only have an important impact in the US market with larger local supplies, but will also realign sugar global flows in the world sugar markets, as the US withdraws from its major role as importer/buyer earlier this year.

According to figures released by the World Agricultural Supply and Demand Estimates Report (WASDE/USDA) earlier this week, United States' beet sugar production forecast was increased for the second time is as many months to a whopping 5.199 million tons for the upcoming 2020-21 crop year. The August monthly report specifically increased domestic beet sugar supply for the upcoming campaign by 199,000 tons. This adjustment is on top of the initial 756,000 ton increase announced by Washington officials last July to kickoff the new crop reporting forecasts covering the upcoming crop year. The two back-to-back monthly adjustments now bring the cumulative beet sugar production forecast to 5.199 million tons, or 955,000 tons higher as compared to the devastating 4.2 million ton sugar beet crop delivered by domestic beet processors this crop year. The US market now sees the strong likelihood of its domestic beet sugar producers potentially supplying an additionally impressive 8% of new domestic sugar supply that otherwise would have been assigned to imports similar as to what occurred earlier this year. The new beet sugar production estimate falls just short of the all-time record of 5.210 million tons set just a few years ago.

The domestic cane sugar sector is presenting equally impressive comeback results. Both Florida and Louisiana reported increased estimates in last week's WASDE, with the Sunshine State's sugar forecast expanded by 35,000 tons and Louisiana's estimates remaining unchanged at 1.850 million tons, unchanged from last month, nonetheless, representing a +337,000 ton increase versus the equally disappointing 1.513 million tons produced in the most recent 2019-20 campaign. Louisiana's forecasted rebound cannot be understated; the Gulf state is set to contribute an additional 3% of domestic sugar supply to the US market starting this fall.

Where there were winners this year, there are also market players that will not be as fortunate and active for the next crop year. On the first hand, trading companies responsible for 1.1 million tons of imports (both in raw and refined formats) will now have to console themselves with a much smaller piece of the market starting this fall as as result of to the projected beet and cane sugar rebound. Several months ago, as word of the disastrous crop failure in the Midwest began to play out in the market, the USDA took proactive action by (a) increasing raw sugar quotas (sugar for processing by US cane sugar refiners), (b) triggering emergency refined sugar imports for direct consumption from all international origins, and (c) allocated new import volumes specific to both Mexico and Canada in an effort to stabilize and expedite supply. These efforts were successful, although the market is now trying to digest some of the sugar supply overhang that arrived later than necessary. Ultimately, shortages were avoided, prices did not skyrocket, so USDA officials are to be commended for their proactive, disciplined approach in staying ahead of the dynamics before things got severely worse.

The other major players set to see reduced influence this coming crop year will be raw cane sugar refiners. With less sugar needed for import this year, the market expects a clear shift in market share away from cane refiners and back to beet processors. With an additional 1.1 million ton arsenal at their disposal, beet sugar processors/marketers have already begun aggressively marketing new crop supply for the 2020-21 campaign, hence a retreat by cane refiners who have a higher cost base and transportation cost challenges in certain parts of the country versus their vertically-integrated beet sugar peers. This shift is market share back to beet producers represents (for now) approximately 11% of total US consumption. The overall volume and marketing power shift is remarkable. Only weather stands in the way.

Finally, Mexico is set to see further reductions in their role as "balancer of the market" for United States sugar needs this coming crop year. Mexico's forecasted export quota to the US is currently set at 1.079 million tons per the August WASDE; however, the same report also arrived at a stocks-to-use ratio of 14.6%, or 1.1% above the required threshold that curtails sugar oversupply into the U.S. market based on the latest revisions to the US/Mexico Sugar Suspension Agreements. Therefore, should all market drivers remain constant between now and the next September WASDE, Mexico is set to see its quota slashed by 130,000 tons to achieve the required rebalance in the stocks-to-use ratio back to the mandatory 13.5%. The reduction would readjust Mexico's 2020-21 US export quota to 949,000 tons, almost 250,000 tons less (-25%) as compared to Mexico's current export estimate this year. If Mexico's domestic market does not have capacity to absorb this non-exportable quantity (assuming sugar production returns to historically normal levels), Mexican sugar producing groups will have no alternative but to export this sugar to the world market where prices are significantly lower. There is much road to be travelled before we arrive at this conclusion and market participants will seek to reshift their commercial strategies based on what opportunities the market provides in the overall.

To conclude, the US sugar market saw sugars arrive from all corners of the globe between January and July 2020 to make up for the unprecedented collapse in beet sugar domestic production last fall. Sugars from as far as Morocco, Algeria, the EU, Brazil, Argentina, and the Far East made their way to ports all across the US to find a home disrupting traditional global sugar flows. The return to almost record-matching domestic production this coming year will shockingly rationalize flows once again within the US, North American and international sugar markets. Beets have begun emerging from farms all throughout the US Midwest to produce new 2020-21 sugars, and both Florida/Louisiana are getting ready to begin cane harvesting operations soon. The main driver for the next months will be weather. Summer tropical cyclone activity and the "normal" cooling weather required in the northern US this fall/winter to properly harvest and store beets are main factors to watch. For beet producers around the country, pulling the beets off the ground only constitute 50% of the winning formula. The beets will need to properly store as well. And so the US sugar market will undoubtedly continue to close monitor these developments as we make this transition to the new sugar campaign.