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Published November 22, 2013, 08:47 PM

Scuse defends sugar stock-use ratio change

MANDAN, N.D. — A top U.S. Department of Agriculture official says a formula for figuring U.S. sugar imports will continue to be based on higher stocks-to-user ratios than were used two years ago.

By: Mikkel Pates, Agweek

MANDAN, N.D. — A top U.S. Department of Agriculture official says a formula for figuring U.S. sugar imports will continue to be based on higher stocks-to-user ratios than were used two years ago.

Under Secretary Michael Scuse, attending events with U.S. Sen. Heidi Heitkamp, D-N.D., in Minot, N.D., and Mandan, N.D., on Nov. 22, said there isn’t anything wrong with the inventory ratios that he oversees and are used to set import levels, despite a recent criticism by Kurt Wickstrom, new president and CEO of the Minn-Dak Farmers Cooperative in Wahpeton, N.D.

“The USDA appears to want to manage the stocks-to-use ratio at 14 to 15 percent, and I challenge you to find any other industry that operates profitably with on-hand inventory in excess of 12,” Wickstrom said in a recent interview with Agweek. Wickstrom said the sugar industry is heading into difficult economic times for producers. The main reason is the oversupply of Mexican sugar under the North American Free Trade Agreement. But the fact that USDA is setting U.S. policies on keeping too much sugar in the market also comes into play.

Industry outlier

“Other industries don’t operate that way,” Wickstrom said. “We’ve got the logistics, the communication. We can ship product quickly. We don’t need to have 15 percent sugar on hand all of the time. Maybe 50 years ago when we didn’t have the transportation, didn’t have the logistics. But today we should be able to run this business on a 12 percent stock-to-use ratio.”

The ratio is not law but “the administration’s approach,” Wickstrom said. Previous administrators ran it with lower percentages and producers got what they needed. Sugar users had the supplies they needed and never ran out. Wickstrom mentioned Scuse’s predecessor, Jim Miller, who ran the program at 12 percent.

Miller, originally a Washington state farmer, National Association of Wheat Growers president and National Farmers Union economist, also was a key agricultural policy staffer for former U.S. Sen. Kent Conrad, D-N.D., during the crafting of the 2008 farm bill.

Conrad was widely known as a champion for the sugar program in the U.S. Senate Agriculture Committee. In March 2009, Miller moved to USDA as Under Secretary for Farm and Foreign Agricultural Services to implement the 2008 bill, and then moved back to the Conrad staff in January 2011 to try to help write a replacement for the bill, which was to have expired at the end of that year.

Instead, Conrad retired and the farm bill didn’t get finished.

Sugar’s new sheriff

Scuse was Miller’s deputy from 2009 to 2011. Before joining USDA, he was Delaware Secretary of Agriculture from 2001 to 2008, and then chief of staff to Delaware Gov. Ruth Ann Minner. For his part, Scuse said USDA looks at the “optimum stocks-to-use ratio” in determining sugar imports. “That is around 15 to 15.5 (percent). That’s where we’d like to be to have a fairly stable market.

“When you look at the overall scheme of things, it’s not that big a change to go from 12 to 15 or 15.5,” he said, of the percentages. “At the end of the day, when you look at where our sugar price was in the United States versus the worldwide price of sugar, there was a huge disparity between those numbers. We needed to make sure the users in this country had an adequate supply of sugar that was priced within reason.”

The number to get to ensure that supply was 15.5 percent, Scuse said. “There was always that range, it was never a set number. In some years it was at the low end of the range and other times it was about 12. But it was never actually established that this was the mark that we were looking for until about two years ago,” he said. "That’s a number we had picked where we’d like the stocks-to-use ratio to be.”

Asked if the change was a result of a change in personnel, philosophy, or circumstances, Scuse said “a lot of different things” were responsible. “If you look at where our sugar supplies were at the time, the price of sugar at the time, the demands from the industry – there are a lot of factors that drive that,” he said.

Unlikely to go back

“I don’t know if it’s likely to change back,” Scuse said, asked if the ratio would go back to 12 percent anytime soon. “Right now we have an oversupply – a stocks-use ratio that is probably in the 20 to 21 percent range right now. We do have a lot of stocks but we have been doing everything we can do in reason to get those stocks where they need to be – from exchanging export credits to having sugar forfeited, using the Feedstock Flexibility Program (sugar to fuel ethanol), working with other governments to make sure we don’t have imports into this country, to make sure they find other markets for their products.”

Scuse couldn’t say whether the ratio was “wrong before” when the department pegged it at 12 percent. He said when U.S. sugar prices were higher it “did put a strain on the endusers.

“When you come out and have a target like that, then the users know that they’re going to have an adequate supply of sugar and the producer knows what kind of production we need to have to meet that target.  And you even out the highs and lows that we have been experiencing.”

Wickstrom said the last World Agricultural Supply and Demand Estimates report indicated a 19.9 percent stocks-to-use ratio in the U.S. But he said that includes about 300,000 tons of government-owned sugar that was forfeited.

"It’s not in the human consumption chain anymore. The government has now said ethanol producers can bid on that sugar to get it out of the consumption market,” he said. With that removed, the stocks-to-use ratio is still 17.3 percent, which is still a "mountain of sugar.

Still a mountain

Scuse said nobody predicted the record crop the world had in beets, cane and Mexican sugar that flooded the market. 

"We look to where we believe the optimum stocks-to-use ratio is so that we can have an adequate supply for our users (candy makers and others).”

“We have to try to make both sides happy – the producers as well as the endusers,” Scuse said. “You bring these two sides as close together as you possibly can. It’s difficult because if the prices get too low like they are right now, then you have producers who aren’t happy. If prices are too high like they were a couple of years ago, the endusers aren’t happy.

“You look at what you can do to make sure that your producers are still making money and at the end of the day, the endusers are buying a product at a reasonable price.”

Asked how keeping stocks high and sugar prices lower translates significantly into the price of a candy bar, Scuse answered this way:  “It depends on who you talk to. There are those in the candy industry that will tell you that the biggest expense they have in making their product is, in fact, sugar. What percentage? It depends on what type of candy that’s being made.”

 

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