Author: Michael Deliberto

It is critical to consider the relationship between macroeconomic forces and the balance of global sugar supply and demand when examining sugar markets. Global economic expansion, along with a world population that is growing at approximately 1% per year  (U.S. Department of Commerce, 2024), supports strong sugar demand globally, which typically also supports world prices. However, falling energy prices and/or a worldwide recession could push global sugar prices lower. 

The world raw sugar price is somewhat reflected in the Sugar No. 11 futures contract (Figure 1). The Sugar No. 11 contract price does not include the transportation costs associated with delivering sugar to destination ports. As stated in the specifications for the Intercontinental Exchange (2024) Sugar No. 11 futures contract, “the contract prices the physical delivery of raw cane sugar, free-on-board the receiver’s vessel to a port within the country of origin of the sugar.” 

Major sugar-producing countries like Brazil, India, and Thailand provide subsidies and other support for their sugarcane sector, which can have a strong influence on the Sugar No. 11 futures contract price.  This is especially true when production fluctuates due to weather conditions or when governmental policies dictate a diversion of sugar into ethanol production. 

Worldwide sugar deficits have occurred in three out of the last four years. In turn, a tightening global stocks-to-use ratio has supported world sugar prices. As world raw sugar prices have moved upward, so too have U.S. raw sugar prices, which are reflected in the Sugar No. 16 futures contract price (Figure 1). The Sugar No. 16 futures contract does include transportation costs associated with delivering sugar to the destination port and, thus, the contract incorporates physical delivery into its price.

Figure 1. Sugar No. 11 and Sugar No. 16 Futures Contract Prices, their relationship, and the Tier 2 Tariff, 2020 to 2024. Source USDA ERS, 2024.

At present, Mexico’s ability to export sugar to the U.S. is hindered by drought, and Mexican production is expected to be significantly reduced again this year. As such, Mexican sugar exports into the U.S. market are expected be at a decade-and-a-half low at only 497,000 tons, according to the May USDA (2024) World Agricultural Supply and Demand Estimates report.

Under the terms of the World Trade Organization (WTO) and several free trade agreements, sugar imports are allowed duty free under a Tariff-rate Quota (TRQ) system. In situations where raw sugar is imported outside of the TRQ, importers must pay a 15.36-cents-per-pound tariff in addition to the world raw sugar price plus transportation costs. This tariff is referred to as a tier-2 sugar import tariff and is shown as the green line in Figure 1. 

The red line in Figure 1 demonstrates the world raw sugar price plus transportation costs to the U.S. plus the tier-2 tariff. If the expected U.S. sugar supply falls and pushes domestic prices up to the point that they exceed that level, higher levels of tier-2 raw sugar will be attracted to the U.S. Thus, the red line represents the effective cap on U.S. raw sugar prices. For example, the existence of substantial demand for sugar beyond what Mexico can supply has resulted in large amounts of tier-2 imports [see Deliberto et al. (2024) for more information]. Those imports will enter the U.S. whenever the price for world sugar plus transportation costs plus the tier-2 tariff (red line, Figure 1) falls below the cost of procuring raw sugar supplies from preferential-access imports or domestic supplies (including Mexican production). Again, that relationship effectively caps the wholesale price of domestic raw sugar in the U.S. (red line, Figure 1).  

Conversely, if supply was expected to rise relative to demand in the U.S. (e.g., due to higher-than-expected domestic production or imports from Mexico) then the demand for tier-2 sugar would fall, bringing domestic prices further below the tier-2 cap. But, so long as demand for tier-2 sugar exceeds zero, the price in the U.S. for raw sugar will be driven by world prices plus transportation costs plus the tier-2 tariff of 15.36 cents per pound (red line, Figure 1). It should be noted that the figure depicts monthly prices as well as a static assumption of transportation costs of five cents per pound. There have been significant amounts of tier-2 sugar entering the U.S. over the past several years, which likely represents arbitrage opportunities to bring in tier-2 raw sugar due to pricing relationships or transportation cost adjustments that are occurring on a daily basis.

We observe that the same relationship frames the prices for wholesale refined sugar in the U.S., which is capped at the world price, or the Sugar No. 5 futures contract price for refined sugar plus the tier-2 refined tariff (16.21 cents per pound) plus transportation costs of shipping refined sugar to the U.S. With falling world refined prices coupled with the expectation of near-record high sugarbeet production, the U.S. wholesale refined sugar price has recently followed the world Sugar No. 5 price downwards. Midwest refined beet sugar spot prices have ranged between 55 to 58 cents per pound. When pricing the 2024 expected crop, refined sugar prices have held steady in the 53 to 55 cent range, which is considerably lower than prices in the prior 18 months that reached as high as 70 cents per pound. 

Overall, raw and refined sugar prices in the U.S. are currently driven by transportation costs associated with shipping bulk raw sugar and containerized refined sugar to the U.S., and factors that are affecting the global sugar market. Those factors include, among others, foreign subsidies [e.g., World Trade Organization (2024)], demand for ethanol as a transportation fuel [e.g., Bloomberg (2024)], and global growing conditions for sugarbeets and sugarcane crops [e.g., USDA FAS (2024)].

References

Bloomberg. 2024. Tereos Brazil to Keep High Sugar Output as Peers Endure Drought. Retrieved from: https://www.bloomberg.com/news/articles/2024-04-01/tereos-brazil-to-keep-high-sugar-output-as-peers-endure-drought

Deliberto, M., K.L. DeLong, and B. Fischer. “Navigating U.S. Sugar Imports From 70 Countries.” Retrieved from: https://southernagtoday.org/2024/04/18/navigating-us-sugar-imports-from-70-countries/

Intercontinental Exchange. 2024. Sugar No. 11 Futures. https://www.ice.com/products/23/Sugar-No-11-Futures  Date accessed: May 3, 2024.

USDA. 2024. May WASDE. Retrieved from: https://www.usda.gov/oce/commodity/wasde

USDA ERS. 2024. “Sugar and Sweeteners Yearbook Tables.” Retrieved from: https://www.ers.usda.gov/data-products/sugar-and-sweeteners-yearbook-tables/ Date updated: April 2, 2024. Date accessed: April 18, 2024. 

USDA FAS. 2024. Global Agricultural Information Network: Sugar Annual. Retrieved from: https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Sugar%20Annual_Managua_Nicaragua_NU2024-0002.pdf

U.S. Department of Commerce. 2024. “Census Bureau Projects U.S. and World Populations on New Year’s Day.” Retrieved from: https://www.commerce.gov/news/blog/2024/01/census-bureau-projects-us-and-world-populations-new-years-day#:~:text=The%20projected%20world%20population%20on,the%20U.S.%20and%20world%20populations. Date updated: January 3, 2024. Date accessed: April 18, 2024. 

World Trade Organization. 2024. India’s Measures to Provide Market Price Support to Sugarcane. Retrieved from: https://web.wtocenter.org.tw/downFiles/12294/398060/00k37djfolGb0l5OnjSaA8xFnrwmAEQAiLp0Y7SoysK00000tZTwiAmB3qaIG9YFD0000073wLiCTUqy9oiKW087r8sHXz4A==

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Deliberto, Michael, Karen L. DeLong, and Bart L. Fischer. “Analyzing World and U.S. Sugar Price Dynamics.” Southern Ag Today 4(21.1). May 20, 2024. Permalink

The domestic production of sugar in the United States (U.S.) originates from sugarcane harvested in Florida, Louisiana, and Texas and sugarbeets harvested across the Upper Midwest, Central Plains, Mountain states, Pacific Northwest, and California. Sugarcane is harvested from October to March and sugarbeets are harvested in the late summer through fall, except for California where sugarbeets are harvested in the spring through the summer. Earlier this year, the U.S. Department of Agriculture (USDA) forecasted a record domestic sugar crop for fiscal year (FY) 2023/24, which is from October 2023 to September 2024. The USDA later lowered its FY 2023/24 forecast to 9.24 million short tons raw value (STRV) of sugar (Figure 1) because of unseasonably warm weather in the Upper Midwest and a severe drought in Louisiana and Texas (USDA, 2024b). 

U.S. beet sugar production for FY 2023/24 is now estimated at 5.17 million STRV, which is consistent with previous FYs (Figure 1). In earlier USDA reports, the beet sugar production forecast was as high as 5.41 million STRV, but unseasonably warm temperatures in the Red River Valley during the months of December and February led to a portion of sugarbeet piles having to be discarded due to spoilage. This contributed to increased beet shrink, which rose from 7.88% in February to 9.00% in March, and decreased sucrose extraction which fell from 15.26% to 15.02% month-over-month (USDA, 2024c). As a result, USDA lowered projections of beet sugar production this year, from 5.41 million STRV in January to 5.17 million STRV in March (a reduction of almost 240,000 tons in two months).

U.S. cane sugar production for FY 2023/24 is estimated at 4.07 million STRV. This would be the highest level of cane sugar production since FY 2019/20. Increases from the state of Florida and a better-than-expected crop in Louisiana (which was hard hit by drought during the growing season) contributed to FY 2023/24’s production eclipsing last year’s level. Prior to the onset of drought conditions in Louisiana, the state was poised to post its third consecutive year of strong, record setting production, overtaking Florida for two consecutive years for the first time. However, current estimates of cane sugar production from Louisiana are down about 65,194 tons from last year’s production to 1.94 million tons.

Figure 1. U.S. Beet and Cane Sugar Production.

Lastly, the lack of both rainfall and irrigation water for agricultural producers in the Rio Grande Valley of South Texas over the past several years has caused cane sugar production from Texas to fall from as much as 169,000 STRV in 2017 to as few as 40,000 STRV this year. In February, the Board of Directors from the Rio Grande Valley Sugar Growers announced that this would be the last year of cane sugar production in Texas. Given the uncertainty regarding the administration of the 1944 Water Treaty between Mexico and the U.S., which governs water sharing on both the Colorado River as well as the Lower Rio Grande, growers could not count on irrigation water supply, making purchasing crop insurance uncertain and making necessary investments into the sugar mill and farming operations too risky (USDA, 2024c; San Antonio Express News, 2024). 

In total, U.S. sugar production in FY 2023/24 is estimated to be 9.24 million STRV, which would be the third largest crop behind FY 2017/18 (9.29 million STRV) and last year’s crop (9.25 million STRV). With expected domestic demand of 12.6 million STRV and some exports going to Mexico, total use is projected at 12.7 million STRV (USDA, 2024a) which would, suggest ending stocks of 1.7 million STRV, and a stocks-to-use ratio of 13.4%, all else being equal. On average, the USDA’s estimates of ending stocks-to-use have been low in March relative to the final estimate in December by 1.2% over the past six years, suggesting a final stocks-to-use of approximately 14.6%, and ending stocks of 1.85 million STRV, or 3.7 billion pounds of sugar.

            Even though U.S. sugar producers have seen their input costs rise by more than 30% since the last Farm Bill (Deliberto and DeLong, 2023), the U.S. is still the fifth largest producer of sugar in the world producing more than 9 million STRV of sugar (USDA, 2024d). 

With 12.5 million STRV of sugar consumption, the U.S. is also the third largest importer of sugar in the world (USDA, 2024d). How these dynamics interact with sugar markets and sugar policy will be addressed in a future Southern Ag Today article.

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References

Deliberto, M and K.L. DeLong. “Examining Sugarcane and Sugarbeet Production Costs.” Southern Ag Today 3(50.1). December 11, 2023. https://southernagtoday.org/2023/12/11/examining-sugarcane-and-sugarbeet-production-costs/

United States Department of Agriculture (USDA). 2024a. World Agricultural Supply and 

Demand Estimates. Retrieved from: https://www.usda.gov/oce/commodity/wasde

USDA. 2024b. World Agricultural Supply and Demand Estimates. Retrieved from: 

https://www.usda.gov/oce/commodity/wasde/wasde0324.pdf

USDA. 2024c. Economic Research Service. Sugar and Sweeteners Outlook. Retrieved from: 

https://www.ers.usda.gov/webdocs/outlooks/108800/sss-m-427.pdf?v=1130.6

USDA. 2024d. Foreign Agricultural Service. Sugar: World Markets and Trade. Retrieved from: https://apps.fas.usda.gov/psdonline/circulars/sugar.pdf

San Antonio Express News. 2024. Texas’ Last Known Sugar Mill Shuts Down in Rio Grande 

Valley, Citing Water Issues with Mexico. Retrieved from: 

https://www.expressnews.com/news/article/texas-sugar-mill-closes-cites-water-issues-mexico-18687760.php

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Deliberto, Michael, and Karen L. DeLong. “The 2024 Sugar Market Domestic Supply and Outlook.” Southern Ag Today 4(14.1). April 1, 2024. Permalink

Sugarcane and sugarbeet production are highly specialized processes with a unique set of production costs. These crops are grown in limited geographical regions of the country with sugarcane being grown in Florida, Louisiana, and Texas and with sugarbeets being mainly cultivated in the Red River Valley, upper Midwest, Great Plains, Northwest, and in California. Sugarcane is a perennial crop often grown in cycles of between four to six years. Conversely, sugarbeets are often grown in rotation with grain, oilseed, and pulse crops, which typically limits the planting of sugarbeets to once every four years for a particular piece of land. 

Given that the commodity program safety net for sugarcane and sugarbeet growers is mainly provided through the marketing loan program, this article evaluates sugarcane and sugarbeet production costs relative to loan rates established in the 2018 Farm Bill. Specifically, production costs of Louisiana sugarcane and that of sugarbeets grown in Minnesota and North Dakota are compared for the last several years, subject to available data. 

In this analysis, Louisiana sugarcane production costs represent the weighted costs per acre for a five-year crop rotation with harvest through stubble, as defined by the LSU AgCenter. Cost data for sugarbeets was obtained from the University of Minnesota FINBIN database which encompasses production and cost data for many sugarbeet-producing farms in Minnesota and North Dakota (the Red River Valley). 

Since 2018, production costs for sugarcane in Louisiana have risen substantially. The main drivers behind these increases have been mainly due to a 130% increase in the cost of fertilizer and an 82% increase in the cost of diesel fuel since 2018 (Figure 1). 

Figure 1. Selected direct production expenses for Louisiana sugarcane per acre, 2018 to 2023. 

For Louisiana sugarcane producers, the total cost of production has risen from $551 to $858 per acre over the period of 2018-2023. That is an increase of over $307 per acre since 2018. A unique feature of sugarcane’s cost structure is the acquisition and maintenance of highly specialized farm equipment (e.g., combine billet harvester, planting wagons). Increases in machinery costs coupled with higher interest rates have resulted in overall machinery ownership costs increasing by 55% over the past five years (Figure 2).

Figure 2. Comparison of Louisiana sugarcane production costs, 2018 versus 2023. 

As a result of the increase in production costs, the average breakeven selling price for raw sugar has increased from 17.2 cents per pound in 2018 to 28.2 cents per pound in 2023, an increase of 64% (or 11 cents) as noted in Table 1. 

Table 1. Cost of production for raw sugar in Louisiana, 2018 to 2023. 

Referencing the uniqueness of the crop, sugarcane must first be processed into raw sugar and then transferred to another facility where it is converted to refined sugar. Sugarbeets omits this intermediate step because after it undergoes initial processing, the finished product is refined sugar. Because of this difference in processing techniques, the production costs for sugarcane are calculated per pound of raw sugar while the cost of sugarbeets are calculated on a per-ton basis.  

While produced on a slightly larger area than sugarcane, the cost structure for sugarbeets can differ from that of sugarcane based on geographical differences. In the Red River Valley region, the average total cost of production per acre for sugarbeets has increased from $1,099 in 2018 to $1,350 in 2022, an increase of $250 per acre. Large drivers of the increase in production costs were chiefly attributable to a 66% increase in the price of fertilizer and a 37% increase in the price of diesel fuel (Figures 3 and 4). Like sugarcane, sugarbeets have their own set of unique costs (e.g., specialized equipment costs for carts, defoliators, and harvesters), which is reflected in the cost increase over the observed period. 

Figure 3. Selected direct production expenses for sugarbeets Minnesota and North Dakota, 2018 to 2022. 

Figure 4. Comparison of sugarbeet production costs in Minnesota and North Dakota , 2018 versus 2022.

Sugarbeet producers have seen their cost-per-ton estimates increase substantially from the 2018 crop year. The average direct cost per ton of sugarbeets produced has increased from $31.73 in 2018 to $42.19 per ton in 2022. However, the highest cost occurred in 2019, when the average cost of production per ton was $48.21. When comparing the lowest cost of production per ton ($31.73) to the highest ($48.21), this represents an increase of over $16 per ton (52%). Likewise, the total cost plus overhead per ton has increased from $40.07 to $60.25, an increase of greater than $20 per ton (Table 2). The increase in production cost per ton in the 2019 crop year was caused by flooding that disrupted planting followed by a freeze during the harvesting of sugarbeets. This disruption reduced3.50.1- sugarbeet yields causing production costs-per-ton to sharply increase. Since that time, sugarbeet costs have displayed precipitous peaks and valleys. 

Table 2. Cost of production per ton for sugarbeets in all States, 2018 to 2022. 

The 2018 Farm Bill sets the raw cane sugar loan rate at 19.75 cents per pound and the refined beet sugar loan rate at 25.38 cents per pound (USDA, 2023). This article provides information that could be useful in Farm Bill discussions regarding sugarbeet and sugarcane loan rates. Since the enactment of the 2018 Farm Bill, costs of production for sugar have drastically increased—by about 30% for sugarbeets (2018-2022) and by about 38% for sugarcane (2019-2023). 

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References 

Deliberto, M. and B. Hilbun (2023). Projected Costs and Returns for Sugarcane in Louisiana. Louisiana State University AgCenter, Department of Agricultural Economics and Agribusiness, A.E.I.S. Report No. 362, January 2023. 

FINBIN (2023). Center for Farm Financial Management, University of Minnesota. http://finbin.umn.edu . Date Accessed: November 10, 2023.

USDA. (2023). Sugar Policy. https://www.ers.usda.gov/topics/crops/sugar-and-sweeteners/policy/. Date Accessed: December 1, 2023.  

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Deliberto, Michael. “Examining Sugarcane and Sugarbeet Production Costs.” Southern Ag Today 3(50.1). December 11, 2023. Permalink

In the international rice arena, much of the attention has been focused on the Indian Government’s July 2023 decision to ban non-basmati white rice exports. This is significant to the global rice market as India is the world’s largest rice exporter. The USDA reports India’s 2022-2023 marketing year share of total global rice exports at 40%, as shown in Figure 1 (USDA ERS, FAS, 2023). India has dominated the international market for some time due to low domestic prices and high stocks – resulting from a bevy of trade-distorting subsidies – which allows India to offer rice at substantially lower prices to international buyers. Almost half of India’s exports are non-basmati parboiled rice, with the ban affecting approximately 15% of global rice trade. 

The decision by India to ban rice exports was a means of countering rising food inflation and ensuring sufficient domestic supplies heading into an election year. Also factoring into the government’s decision were uncertain weather conditions attributed to El Niño (warming conditions and potential drought). Indian rice stocks remain plentiful, due in part to their much-scrutinized subsidization policy for rice.  The non-basmati rice ban has not been the only policy action on rice taken by India over the last year.  In September 2022, India banned exports of broken kernel rice and placed 20% tariffs on rough rice, brown rice, and regular milled white rice.  In August 2023, a 20% tariff was placed on parboiled rice exports through mid-October and a $1,200 per ton minimum export price was placed on basmati rice. 

The Indian government has insulated Indian rice farmers from falling domestic rice prices. It sets market support prices and subsidizes crop inputs like fuel, fertilizer, and water to support farmer incomes and lower food prices. In April 2023, a consortium of grain exporting countries, including the U.S., filed a second counter notification at the World Trade Organization, formally challenging India for obscuring the true level of price supports and subsidies it provides for its wheat and rice producers (USA Rice, 2023).

While policy decisions by the Indian government have had an impact on global rice prices, the question remains: Will U.S. rice prices see support from this policy-induced market shock? The short answer is ‘not immediately – but opportunity might exist later in the year.’ 

Global rice prices can support the domestic market to a certain degree as a result of trade flows of both Indian and U.S. rice. Rice exports from India are primarily destined for African countries (e.g., Benin, Senegal, Kenya, Togo, Guinea, and the Ivory Coast). These countries predominantly import broken rice, which is much cheaper than milled rice. In addition, the Philippines, Malaysia, and Vietnam are also reliant on Indian rice exports. Whereas, for the U.S., major rice markets include Mexico, Canada, Haiti, and Latin America. Mexico is primarily a buyer of U.S. rough rice. The Middle East is a region that imports from both the U.S. and India. However, sales to the Middle East – while important – are not ‘core’ markets for U.S. rice. 

The USDA FAS reports that Thai, Vietnamese, and Pakistani export rice prices have increased (Figure 2) because of the Indian ban as countries begin to cover their needs, raising concerns that other countries will also restrict or ban exports (notably, Myanmar recently announced that it was temporarily restricting exports). Thai export prices had risen rapidly from late July through mid-August, peaking at about $650 per ton. Currently, Thai prices are quoted at $595 per ton. Like Thailand, Vietnamese export prices rose quickly but have since retreated to $616 per ton. Asian buyers are holding off from making purchases in hopes that prices continue to fall. U.S. rice export prices for No. 2 4% broken long grain milled rice remain quoted at $760 per ton, unchanged since late January and the highest since October 2008. U.S. quotes for Latin American markets were also unchanged since late January at $725 per ton. Indian price quotes have been unavailable since the start of the export ban which came into effect on July 20^th. Prior to the ban, India rice was quoted around $450 per ton.

Expectations of a significant increase in U.S. rice supplies has helped keep U.S. rice prices stable. However, the export ban in India ultimately will benefit U.S. rice producers in the short run with stronger U.S. export demand likely developing in the Middle East (e.g., Iraq). U.S. rice may also be able to secure additional exports into the Caribbean and Central and South American markets which will contribute to capturing lost market share. U.S. rough rice sales to other Latin American markets are expected to increase in 2023/24. In the previous marketing year, the U.S. saw significant erosion of its market share in Mexico to South American suppliers, mostly Brazil, due to their more competitive prices. Long term, high global prices will increase global rice production. Growing stockpiles of rice in India – compounded by India’s extensive use of trade-distorting subsidies – will ultimately be dumped on the world market, thus causing world rice prices to over-correct (CoBank, 2023).

Figure 1. Global Rice Exports, by Country Share (%), USDA FAS. 

Figure 2. Weekly FOB Export Quotes ($/ton) for Long Grain Milled Rice, USDA FAS. 

References

CoBank. “India’s Rice Export Ban: Short-Term Benefit, Long-Term Challenge for U.S. Rice”. August 17, 2023. 

USA Rice Federation. “India’s Rice Subsidies Under Fire at WTO by U.S., Thailand, and Others”. USA Rice Daily, April 6, 2023. 

USDA Economic Research Service (ERS). “Rice Outlook”, September 2023. https://www.ers.usda.gov/webdocs/outlooks/107418/rcs-23h.pdf?v=8325.4  Date Accessed: September 14, 2023. 

USDA Foreign Agricultural Service (FAS). PSD Online.  https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery Date Accessed: September 25, 2023.

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Deliberto, Michael. “How Market Dynamics Separate World and U.S. Rice Export Prices.” Southern Ag Today 3(44.1). October 30, 2023. Permalink