NEW YORK (Reuters) — The U.S. government announced plans to launch a third round of its “sugar-for-ethanol” program in a bid to offload almost 300,000 short tons of excess sweetener from the 2012-13 season to end-September.
In a statement on Thursday, the U.S. Department of Agriculture said it is seeking bids from U.S. ethanol producers for 296,500 short tons of government-owned sugar that processors defaulted to the government at the end of the 2013-14 season.
The sugar companies forfeited the sweetener they had used as collateral for government-backed loans, rather than repay in cash as sugar prices tumbled to multi-year lows.
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U.S. prices plunged due to “U.S./Mexican sugar supply far exceeding demand in our common sugar market,” the USDA said in a statement.
The defaults left the U.S. government holding a significant inventory of unwanted sugar on Oct. 1 at the start of another season expected to see prices remain under pressure as supplies continue to climb.
The USDA sold about 143,000 tons of unwanted sugar to ethanol producers in two previous rounds of the program that showed mixed results. The agency previously said it would rework the program to attract more interest from the ethanol industry.
In this third try, the USDA said it has increased the minimum bid size for the fledging feedstock flexibility program to 50,000 tons to give “opportunity for commercial-scale use” in biofuels, it said.
The change may prove a deterrent to some of the smaller biofuels manufacturers that have been active in the fledgling program in the past.
“The USDA wants to move the sugar, and we’ll see how many offers come in,” said Sterling Smith, a futures specialist with Citigroup in Chicago.
“If I’m a smaller buyer, they’ve effectively cut me out of the market.”
