Sugar market stable and upbeat, economist says
Sugar prices look stable and healthy for the next several years. That's good for the Upper Great Plains, including North Dakota, Minnesota, Nebraska and Montana, which together account for about 30% of the nation's sugar industries.
FARGO, N.D. — Sugarbeet farmers can look forward to a positive sugar price at least until 2023. And there are positive signs beyond that.
That’s the upbeat message from Jack Roney, veteran director of economics and policy analysis for the American Sugar Alliance, which represents both beet and cane industries — growers, processors and refiners.
Roney, with the ASA since 1996, was the primary guest speaker on Dec. 3 in an historic “virtual” joint meeting between American Crystal Sugar Co. of Moorhead, Minn., and the Red River Valley Sugarbeet Growers Association, based in Fargo and representing co-op members. The annual sugar meetings serve as the annual business meetings, but in 2019 attracted some 800 shareholder farmers and interested parties.
As always, much of the co-op news for this year’s annual meeting came out in factory district meetings in November, led by a $52 per ton payment projection for the 2020 crop — the highest initial payment projection for many years. The co-op also announced a “comprehensive active farmer policy” that will keep the co-op in line with co-op roots.
American Crystal Sugar strives for ‘best in the world’ of sugar
Roney said that a key determiner of refined sugar prices is the stocks-to-use ratio — that’s surplus stocks at the end of the marketing year in September.
A lower stocks-to-use ratio generally means stronger prices. Ending stocks-to-use ratios, on average, have declined from an average of 16.2% in the 1996-97 marketing year, to 14.7% in 2016-17 marketing year.
That’s in part due to increasingly effective trade deals with Mexico.
The United States sugar policy is designed to allow imports, but not to disrupt a domestic industry that provides $20 billion in economic activity and 142,000 jobs.
Roney has had a front-row seat on the sugar industry. He worked at USDA from 1975 to late 1989 as chairman of the interagency sugar estimates committee, working for the World Agricultural Outlook Board, which puts out the World Agricultural Supply and Demand Estimates, or WASDE, report. Roney worked several years as vice president and Washington representative of the Hawaiian Sugar Planters Association, and finally came to the ASA in August 1996.
Roney said a key trade issue was with the North American Free Trade Agreement, passed in 1994. NAFTA limited Mexican access to the U.S. sugar market for the first 15 years, with fixed maximum amounts they could send, other than years of hurricane disruptions.
Initially, Mexican shipments to the U.S. remained well under 1 million metric tons. But in 2008, NAFTA established a fully “free trade” between the U.S. and Mexican sugar markets.
World wholesale refined beet sugar prices spiked from 2009 to 2012. In 2013, Mexico had a huge crop, and for two years sent more than 2.1 million short tons of sugar into the U.S., or about twice as much sugar as the U.S. market “needed,” Roney said.
The U.S. brought cases before the ITC, which resulted in anti-dumping duties and countervailing duties of 80% of the import price. These would have gone in place until 2014 when the two governments negotiated “suspension agreements” designed to limit refined sugar from Mexico.
But the agreements weren’t enough and, in 2017, the Trump administration modified those agreements. Since then, U.S. stocks-to-use ratios have returned to the USDA’s targeted range of 13.5% to 15.5%. (In fact, the 2019-20 stocks-to-use ratios have declined to 13% and the 2020-21 ratio is projected at 10.6%, but will be corrected in December.)
The modified agreements provided “reference prices,” below which Mexico cannot sell into the U.S. market, Roney said.
“They’ve raised our price ‘floor.’ And they provide some ‘inoculation,’ if you will, against future free trade agreements, because if the U.S. government makes more deals with foreign countries to give them more access to the U.S. market, that will come out of Mexico’s access to our market, rather than U.S. (farmers),” he said.
Sugar prices were up earlier this year to about 44 cents per pound cash price, but have come down to about 36 cents per pound. American Crystal Sugar and other co-ops in the region didn’t have a lot of sugar to sell into that market in 2020 because of the harvest disaster of 2019 after an untimely freeze and snow conditions in the Upper Midwest and a poor Louisiana cane sugar crop.
“Imports have steadied the market,” Roney said. The price going forward into the marketing year is projected at 36.50 cents per pound — well above the reference price for imports from Mexico, and well above the loan forfeiture range of 26 cents to 28 cents for 2020-21.
“We have every reason to expect that prices will continue at these kind of levels going forward, which should give our producers an opportunity to survive,” Roney said. “We finally have some peace and some certainty going forward, in our relations with Mexico.”
Beyond the international trade policy, the 2018 farm bill set domestic policy, and set U.S. sugar policy through 2023.
Roney commended outgoing House Agriculture Committee Chairman Collin Peterson, D-Minn., who he said was most responsible for putting sugar policies in the 2008 farm bill. He lauded Peterson as “the greatest advocate for sugar policy that we’ve had in decades.” Roney also noted the departure of Rep. Mike Conaway, R-Texas, the highest-ranking Republican on the committee, also a “great champion” for sugar.
In an interview, Roney noted that it appeared likely Democrats would lift Rep. David Scott, D-Ga., to the chairmanship, which Peterson had identified as his choice for the post.
Without these leaders, Roney said future farm bills will be a “challenge” now, with a high turnover rate in Congress. Sweetener users — essentially candy manufacturers, who are some of the sugar industry’s biggest customers — constantly attack sugar programs that provide a safety net for the domestic industry, hoping to reduce sugar prices.
Roney said the industry must be vigilant to ensure that any trade pacts the Biden administration makes with the United Kingdom, Japan or Kenya ensure that any concessions should come out of the Mexican imports to the U.S., and not from U.S. growers.
In demand areas, Roney said U.S. food consumption is up 20% more calories per day than a couple of decades ago, but sweetener’s share is down. Roney said.
Total sweetener consumption has declined about 20% since 2000, he said, even as obesity levels have increased. High-fructose corn sweetener consumption increased until about 2007 but has declined. Sugar consumption has mostly leveled off but declined in the past two years.
The sugarbeet industry is important for the Minnesota/North Dakota region, which is the largest sugarbeet producing region in the United States, and American Crystal is its largest producer (including its wholly-owned subsidiary Sidney [Mont.] Sugars Inc.). Also in the region are Minn-Dak Farmers Cooperative of Wahpeton, N.D., Southern Minnesota Beet Sugar Cooperative at Renville, N.D., and Western Sugar Cooperative of Denver, with sugar processing in Montana, Nebraska and Wyoming.