Sugar Rush Leaves U.S. With Biggest Glut in Decade: Commodities
By Marvin G. Perez - Jan 24, 2013 4:56 AM ET
Record U.S. sugar output is creating the biggest domestic glut in a decade, reducing costs for Hershey Co. and making it more likely the government will need to stockpile supply to support farmers.
Production will jump 6.9 percent to 9.07 million short tons (8.23 million metric tons) in the year ending Sept. 30, the U.S. Department of Agriculture said Jan. 17. Stockpiles are forecast at 2.2 million short tons, the most since 2000. Domestic prices will drop 7.7 percent by October to 20 cents a pound, extending last year’s 38 percent slump, according to the median of seven analyst estimates compiled by Bloomberg.
“There’s a massive quantity of sugar being produced,” said Craig Ruffolo, a vice president at McKeanny Flavell Co., the Oakland, California-based sugar broker whose clients have included Kraft Foods Group Inc., General Mills Inc. and Bunge Ltd. “Our supply situation is bursting at the seams.”
While Americans are eating the most sugar since the 1970s, that’s still not enough to absorb increasing supply. Sugar-beet harvests expanded almost twice as fast as demand in the past four years, and the cane crop is the biggest since 2004.
Food makers that didn’t import sugar before 2002 now get about 33 percent of supply from overseas after a free-trade agreement spurred a surge from Mexico. That’s reduced the premium paid for domestic sugar to 3.2 cents a pound relative to world prices, from 10.5 cents a year ago. The decline is reducing profits for farmers and widening margins for food makers.
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