Depressed prices | The USDA wants to reduce the sugar surplus, forecast at 2.2 million tons, to reduce price support payments
WASHINGTON (Reuters) — The U.S. government has offered to sell surplus sugar to biofuel makers in an effort to alleviate the highest sugar subsidy costs in a decade.
The initiative was created during the early days of the ethanol boom.
The U.S. Department of Agriculture has tried repeatedly since June to whittle down an oversupply that has depressed futures prices and created the possibility of a default on $258.7 million in USDA price support loans Sept. 30.
It was the second time the USDA has used the Feedstock Flexibility Program. The first attempt resulted in a comparatively tiny sale, but the USDA said it modified the program to encourage more participation.
“This iteration of FFP is different from the earlier version in that sugar cane and sugar beet processors are encouraged to submit their offer jointly with the bioenergy producer,” said the department.
Refiners forfeited 85,375 tons of sugar to the USDA Aug. 31 rather than repay $34.6 million in loans. Some 556,650 tons are under loans that come due this month.
The USDA unveiled the new FFP round on the day it was due to inform sugar processors of the results of a Sept. 12 offer to swap unwanted sugar for credits held by processors that allow them to bring sugar into the United States for refining and sale abroad. Earlier swaps reduced the surplus by 354,712 tons.
“Whatever the USDA has done, it hasn’t been enough, and there’s still a lot of sugar in the pipeline,” said Jerry Kramer of Kramer Sugar Company, a brokerage in Wellesley, Massachusetts.
“I’m not sure if this will be enough or what the reaction will be this time around.”
Due in part to huge crops worldwide, the U.S. sugar surplus is forecast at 2.2 million tons at the end of this month, equal to 18.4 percent of annual consumption. The USDA aims for a 15 percent stocks-to-use ratio.
Many U.S. sugar growers say the problem has worsened because of large shipments from Mexico, which has free access to the U.S. market.
Processors offered 90,000 tons of sugar in the initial round of the FFP, but only 7,118 tons were sold to Front Range Energy for $854,100. The government lost nearly $3 million on the sale, but it slightly offset the cost of the forfeited sugar.
By law, the USDA is obliged to assure growers of a minimum price for sugar of 20.9 cents per pound while operating the sugar program at no net cost to taxpayers.
The department limits imports and the marketing of U.S.-grown sugar to achieve the twin goals.