Mexican sugar shortage could lead to price hike unless USDA acts – analyst

By Oliver Nieburg

- Last updated on GMT

Related tags International trade

Mexican sugar shortage could lead to price hike unless USDA acts – analyst
Global sugar prices could rise following a shortage in Mexican production unless the US Department of Agriculture (USDA) allows additional imports, according to the Jenkins Sugar Group.

The USDA recently published its ‘Sugar and Sweeteners’​ outlook report where it lowered its forecast for Mexican sugar production for 2011/12 by 330,000 mt.

It therefore forecasts US sugar imports for fiscal year 2012 to be down 563,000 STRV.

“Almost all of this reduction is attributable to lower than expected sugar imports from Mexico,”​ it said.

Impact on sugar prices

Frank Jenkins, president of the Jenkins Sugar Group, told “The extent to which the reduced Mexican availability will manifest itself in higher prices for food manufacturers will depend 100 % on the USDA's willingness and ability to allow additional imports from the other quota holders on a timely basis.”

He said the reduction in Mexican export availability would affect the market in two ways.

“It will increase the need for imports from our other trading partners on a pound-for-pound basis, and it should give the USDA a higher level of confidence if they can act aggressively in increasing the import quota without having the market overwhelmed by unforeseen Mexican exports.”

Import markets

The US may consider importing sugar from other countries, but its ability to import rests upon whether surpluses are recorded in these countries. Even then, the US only has preferential access to capped amounts.

Chile, Morocco, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Peru all have preferential sugar export access to the US sugar markets under Free Trade Agreements.

Just under half of these are expected to record a trade surplus in 2012 and America’s preferential access is limited in most cases.

Its brightest prospect would seem to be imports from Guatemala, which is forecast to have a 1,464,618 mt surplus in 2012, 39,220 mt of which the US has preferential access to.

How much is needed?

Jenkins Sugar Group estimates that the US will need to import at least 750,000 mt of sugar in 2011/12.

“The US will once again be impacted by trade flows in the world market. Dietary trends and the shifting of demand between sugar and high-fructose corn syrup in both the US and Mexico will also be important factors,”​ said Jenkins.

Impact on global prices

Asked how the situation in Mexico would impact sugar prices globally, Jenkins said: “The NAFTA region will play an outsized role in determining outcomes in the broader global sugar market in 2012.”

“As the global sugar market begins to rebuild stocks after the recent deficit years, there is stiff competition for Central American and other western hemisphere sugars. “

“While some important destinations have moved closer to self-sufficiency (Russia, in particular) regional imbalances exist and stocks are still far from plentiful,”​ he said.

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