SUGAR AND SWEETENERS September 26,1997 September 1997, SSS-221 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- SUGAR AND SWEETENERS is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. This release contains only the text of SUGAR AND SWEETENERS -- tables and graphics are not included. Summary released September 19, 1997. The summary of the next SUGAR AND SWEETENERS, the Yearbook, is scheduled for release December 18, 1997. Subscriptions to the published report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #ERS-SSS. ERS-NASS accepts MasterCard and Visa. Please call ERS Customer Service at (202) 219-0515 for further information on ERS products and services. ----------------------------------------------------------------------------- Contents Summary U.S. Sugar Production Consumption Trade Stocks and Prices Programs and Policies Cost of Production U.S. Corn Sweeteners Text Box A: Origin of the United States Sugar Import Tariff-Rate Quota Shares Text Box B: Changing Structure of the U.S. Refined Sugar Market Text Box C: HFCS Trade Dispute with Mexico Text Box D: Internet and Autofax Access to Sugar-Related Data List of Tables Report Coordinator Ron Lord (202) 219-0888 E-mail: RLORD@ECON.AG.GOV Note: As of November 2, 1997, ERS will have moved. The new address for the Sugar & Sweetener group will be Room 5057, 1800 M St NW, Washington, DC 20036-5831, and the new phone number will be 202-694-5260. Database Coordinator/Graphics & Table Design Fannye Lockley-Jolly Layout & Text Design Anne Pearl Summary Raw Cane Sugar TRQ for Fiscal Year 1998 Set at 1.8 Million Metric Tons The raw cane sugar tariff-rate quota (TRQ) for 1997/98 was set on September 17, 1997, at 1.8 million metric tons, raw value. The refined sugar TRQ was set at 50,000 metric tons, raw value, with 25,000 tons allocated to Mexico under North American Free Trade Agreement (NAFTA) provisions. The raw cane sugar TRQ will be administered similarly to last year. Under administration of the TRQ, 1.2 million tons have been allocated. If the stocks-to-use ratio reported in the January 1998 World Agricultural Supply and Demand Estimates (WASDE) report is less than or equal to 15.5 percent, an additional 200,000 metric tons will be available for entry at that time. If the ratio is greater than 15.5 percent, the 200,000 tons being held in reserve will not be made available. The same process will occur with the March and May WASDE reports. U.S. sugar production in 1997/98 (October 1997-September 1998), is projected at 7.635 million short tons, raw value, up 5.3 percent from 1996/97. Beet sugar production is forecast at 4.3 million tons, up 250,000 tons. Cane sugar is up 130,000 tons to 3.34 million tons. Sugar production for 1996/97 is estimated at 7.25 million tons, 4.05 million tons of beet sugar and 3.2 million tons of cane sugar. Sugarbeet area harvested for 1997/98 is up 8 percent from last year when acreage was depressed by bad weather and the relatively high prices of alternative crops. Increased sugarbeet acreage is spread throughout nearly all growing areas. Louisiana is projected to have the largest increase in cane sugar in 1997/98, up 10 percent to 1.15 million short tons because of larger acreage and excellent yields. Florida is projected to produce 1.73 million tons, 3 percent above last year's disappointing crop but about average. Hawaii's production is forecast to decline slightly to 340,000 tons, indicating at least a temporary lull in a 10-year decline from 1 million tons. Total U.S. sugar deliveries for 1997/98 are forecast at 9.9 million tons, up 1.5 percent, or 150,000 tons, from 1997's revised estimate. This growth rate is comparable with the 5-year trend. The U.S. Department of Agriculture's (USDA) forecast of 1996/97 sugar consumption is 9.75 million short tons, raw value, based on analysis of 10 months of USDA delivery data. The United States and Canada reached an agreement on September 8, 1997, in which Canada will not challenge the use of the U.S. sugar-containing products re-export program. The United States has agreed to allocate to Canada its historical share of refined sugar and sugar-containing products in two TRQs. Beginning stocks in 1997/98 are forecast at 1.55 million tons, up 62,000 tons from beginning stocks of 1.49 million tons for 1996/97. Beet sugar processors have been holding significantly more stocks than last year. Wholesale refined beet sugar prices (f.o.b. plant, Midwest markets) have recently declined to 26.50 cents a pound from levels of around 29 cents a pound earlier in the year. The prospective increase in sugarbeet acreage and the corresponding 400,000-ton rise in the forecast beet sugar crop is responsible for much of the softening in refined prices. U.S. raw sugar prices (nearby futures, c.i.f., duty-paid, Contract No. 14, New York) averaged 22.22 cents a pound in the first 11 market days of September, compared with 22.21 in August and 22.04 in July. In the 2 days following the TRQ announcement on September 17, raw sugar prices strengthened. Use of the Commodity Credit Corporation's (CCC) loan program by sugar processors has dropped from earlier years. In the 1996 crop year, 577,000 tons of refined beet sugar and 335,000 tons of cane sugar was placed under loan. USDA has released estimates of the 1996 cost of production for sugar crops. The U.S. national average cash costs of production fell 4 percent for sugarbeets and 1 percent for sugarcane. The proposed merger between Imperial Holly and Savannah Foods, and Industries, Inc. is expected to be completed before the end of the year. Analysis of the sugar market indicates that the share of the sugar market held by the top four firms could rise to 83 percent in 1998, up from 74 percent in 1997. High fructose corn syrup (HFCS) production in calendar year 1997 is projected at 8.5 million short tons, dry basis, up from 8.2 million tons in 1996. Expansion of production capacity in recent years has resulted in the capacity-utilization rate declining to near 70 percent in 1997. HFCS prices continue soft. Mexico has imposed provisional duties on U.S. HFCS. The U.S. Trade Representative's office has asked Mexico for consultations on the duties under the World Trade Organization dispute settlement process. U.S. Sugar 1/ --------------- l/ This report does not contain updates of the world sugar market. Production Production To Rise in 1997/98 U.S. sugar production in 1997/98 (October 1997-September 1998) is projected at 7.635 million short tons, raw value, up 5.3 percent from the revised estimate for 1996/97. Beet sugar production is forecast at 4.3 million tons, representing 56 percent of the total, and cane sugar production is forecast at 3.335 million tons. The beet sugar production forecast would be up 250,000 tons from last year, and cane sugar would be up 132,000 tons. Beet Sugar Sugarbeet area harvested for the 1997/98 crop is projected at 1.43 million acres, up 8 percent from 1996/97 when acreage was depressed by bad weather and the relatively high prices of alternative crops. According to the National Agricultural Statistics Service's (NASS) June Acreage report, sugarbeet area planted for 1997/98 is 1.46 million acres, up 10,000 acres from the March Prospective Plantings report estimate of 1.45 million. Minnesota/Eastern North Dakota The region with the largest share of U.S. sugarbeet acreage is Minnesota and eastern North Dakota, where 1997/98 acreage harvested is forecast at 675,000 acres, 47 percent of the U.S. total. The spring floods along the Red River Valley have not affected the region's overall sugarbeet acreage this year, although there were localized impacts. Planting progress was delayed in some areas, but for the region as a whole planting was about average. In early summer there were areas of dryness, but crop progress to early September has been about average. Through September 6, the percentage of Minnesota and North Dakota sugarbeets in good or excellent condition were 61 and 70 percent, respectively, while the percentages in poor or very poor condition were 6 and 13 percent, respectively. The Minnesota and North Dakota sugarbeet crops are forecast to total 12 million tons, down slightly from last year's 12.2 million and below the record 12.7 million tons in 1994/95. The yield for the two States is forecast at 17.8 tons per acre, lower than the last 3 years. The region's sugarbeet slicing capacity continues to expand. The Minn-Dak Company in Wahpeton, North Dakota, is in the second year of a 3-year acreage expansion which will take the cooperative's total acreage from an initial 70,000 acres, to 92,000 this year, and to about 100,000 acres in the final phase next year. Part of this increased capacity is due to the addition of two more sugarbeet storage sheds this fall, bringing the total to three. Each shed can hold about 80,000 tons of sugarbeets and allows the factory to continue to slice beets an additional 10-12 days in the spring. The region's largest cooperative is American Crystal Sugar Company, with five factories and 12 storage sheds. Last year, American Crystal harvested a record 8.3 million tons of sugarbeets, and although acreage is up this year, crop progress to date does not indicate another record. In August, American Crystal announced an expansion of sugarbeet acreage from the 1997/98 level of about 437,000 acres to 500,000 acres, with the approximately 60,000-acre (14 percent) increase being spread out over the next 2 years. Cooperatives typically require that farmers own one share of cooperative stock for each acre of sugarbeets delivered, although adjustments can be made that allow deviations of the one-to-one relationship between stock ownership and acres. For example, in some years the prospect of poor yields due to weather results in requests from the cooperative for farmers to "overplant." American Crystal had last expanded by 20,000 acres a year ago. American Crystal's factories are currently operating at capacity, and the expanded sugarbeet production next year is to be accommodated by an expansion of the Hillsboro factory after the 1997/98 slicing campaign is over. Michigan/Ohio Sugarbeet acreage is making a comeback in Michigan, and harvested area is forecast at 160,000 acres. After reaching a record high 188,000 acres in 1995/96, acreage harvested sank to an 8-year low of 130,000 acres in 1996/97 due to relatively high alternative crop prices and bad weather. Acreage harvested in Ohio peaked in the early 1970's at 41,000 acres, but dropped to 4,600 acres last year, and less than 1,000 acres for 1997/98. As a result of lower acreage, the sugarbeet factory in Fremont, Ohio did not operate in 1996/97, nor 1997/98. Any sugarbeets grown in Ohio will be shipped to a Michigan factory, as will about 3,500 acres grown in Ontario, Canada. The NASS September Crop Production report indicates Michigan sugarbeet yields at 19.0 tons per acre, the highest since 1990. Planting and emergence in Michigan were early this spring, crop progress is ahead of average so far with a boost from August rains, and campaigns are likely to start in early October, well ahead of last year. Great Plains Acreage planted for the 1997/98 crop is up 14 percent over last year in the Great Plains States, which consist of Montana, Wyoming, Nebraska, Colorado, Texas, and New Mexico. About 275,000 acres were planted, and the September Crop Production report forecasts that 264,000 acres will be harvested in the region. Acreage harvested in Colorado is up 31 percent from last year and is the highest since 1981. Colorado acreage is currently limited by factory capacity, but may rise next year as capacity at the Fort Morgan factory is expected to increase with the addition of a thick juice tank. In some beet factories, the limitation on slicing capacity is not the initial slicing machinery, but the crystallization process. By diverting some of the juice to storage, a faster rate of beet slicing than crystallization is maintained, allowing more beets to be processed. After the regular campaign, the thick juice is then converted into crystalline sugar. Crop progress through early September has been mixed. In Colorado, as of September 7, 84 percent of sugarbeets were in good or excellent condition, and yields are projected up 6 percent from last year to 21.4 tons per acre. In some new growing areas of Nebraska especially, indicated yields are excellent, and State-wide yields in Nebraska and Wyoming are projected up 8 percent and 6 percent, respectively. Montana yields are expected to be down 6 percent to 21.2 tons per acre, as many areas replanted extensively in the spring. In mid-September some factories of Montana and Wyoming will begin "early harvest" when only those beets that can be processed immediately will be harvested. In early October, the full harvest will commence for all the regions' factories, and all remaining sugarbeets will be stored in piles which will be sliced until February or March. Great Plains factories typically run about 5 months, including the thick juice campaign. Northwest Area harvested in Idaho is forecast up 6.5 percent to 196,000 acres, in part due to the prospects of continued strong sugarbeet prices and the decline in prices of alternative crops, such as wheat and potatoes. Sugarbeets are making a comeback in the State of Washington, and area harvested this year is forecast up 40 percent to 18,200 acres. Area harvested in Oregon is up 5 percent to 17,100 acres. Beets from southern Oregon are delivered to factories in California, and beets in west-central Oregon are delivered to the factory in eastern Oregon. Yields in Washington are projected at 36.2 tons per acre, the highest in the country and up 2 percent from last year. The farmers in Washington currently deliver beets long distances to California and Idaho, but a factory being built in Moses Lake, Washington is expected to be ready in fall 1998. In Idaho, yields are slightly better than average, and USDA is forecasting 25.2 tons per acre, compared with 24.8 tons per acre last year. Early harvest began in Idaho September 8, and full harvest (piling of beets) will begin around October 1. California California's sugarbeet area planted jumped 31 percent to 110,000 acres for 1997/98, after dropping below 100,000 acres last year for the first time since 1945. Stronger sugar prices and lower prices for alternative crops have contributed to the acreage rebound. Cotton acreage in California is down 100,000 acres from 1996, due to 2 years of pest problems, high costs of pest control, and stagnant cotton prices. While acreage of some permanent crops such as grapes and almonds has been rising as sugarbeet acreage has fallen, there is limited room for expansion of those crops before prices fall significantly, while for sugarbeets there remains a support program. California yields are forecast at 28.0 tons per acre, 5 percent below last year's record, but well above the most recent 10-year average of 27.1 tons. Of the State's four factories, three will be processing in the fall. The northernmost factory, Woodland, can process as many as 250 days or longer. From late August to early October, Woodland processes beets from northern California which were planted about 8-9 months earlier, and then begins to process beets coming from Washington and Oregon, continuing until mid-January. The Tracy factory, in San Joaquin County, runs from mid-September until November (although this year it will end earlier, in late October) slicing nearby beets, and then from April to mid-June slicing beets planted the previous fall. Tracy has been obtaining spring beets by rail from about 6,000 acres in the Imperial Valley, although this arrangement involves very high transportation costs. The Mendota factory, in Fresno County, processes beets from April through mid-October. The southernmost factory, Brawley, in the Imperial Valley along the Mexican border, processes beets from April through early August, and continues to crystallize thick juice into September. Cane Sugar Forecasting 1997/98 Cane Sugar Production The first NASS forecast of 1997/98 area, yield, and production of sugarcane for sugar will be in the December Crop Production report. Until then, sugarcane production forecasts include sugarcane used for both sugar and seed. USDA's Interagency Sugar Estimates Committee forecasts sugarcane area used for seed for each State based largely upon the latest 5-year average, or an olympic average (in which the highest and lowest numbers are dropped before constructing an average of the remaining numbers). For the recovery rate of sugar from the cane, an average or olympic average recovery rate is also usually assumed. Florida's sugarcane area in 1997/98 is essentially unchanged from last year at 438,000 acres (table 10). Area harvested for seed is forecast at 4.6 percent or 20,000 acres, consistent with the previous 5-year olympic average of 4.5 percent for seed; and area harvested for sugar is thus 418,000 acres. New rotation practices in Florida have increased the percentage of area required for seed in recent years. The resulting sugarcane production (for sugar only) forecast, using the NASS yield of 34 tons per acre, is 14.2 million tons. Crop conditions so far are about average, and yield is forecast at 34 tons per acre, up 3 percent from 33.1 tons last year, which yields an estimated 14.2 million tons of sugarcane for sugar. Applying the 5-year olympic average recovery rate of 12.17 percent results in a sugar production forecast of 1.73 million tons. Louisiana sugarcane area for sugar and seed is up in 1997/98 to 410,000 acres, above the record 400,000 acres of 1995/96. Crop production is expected to be a record with favorable weather, wider use of a new high-yielding variety, and increased use of more efficient mechanical combine harvesters. Growth in Louisiana during July was exceptional because of timely rains and hot weather. As of September 6, 77 percent of sugarcane was in good or excellent condition, while 2 percent was in poor condition. Planting of cane, which will first be harvested for the 1998/99 crop, made excellent progress in early September as farmers took full advantage of the dry weather. By September 6, 55 percent of cane plantings were done, compared with 18 percent last year and an average of 36 percent. Louisiana's sugar production is forecast at 1.15 million tons, based on an assumed recovery rate of 11.21 percent (table 10). For Hawaii, the NASS September 1 estimate of 1997/98 area for sugar and seed is 35,000 acres, down 24 percent from last year. The NASS crop year for Hawaii is the calendar year, so this sugarcane crop forecast applies to January 1-December 31, 1997. The Interagency Sugar Estimates Committee forecast for Hawaii's 1997/98 (October-September) sugar production is 340,000 tons, based largely on surveys of the industry. Hawaii's sugar production was over 1 million tons as recently as 1986. After a poor crop in 1996/97, due in part to a 4-year drought, Texas is projected to produce 90,000 tons of sugar in 1997/98. Although rains have helped replenish reservoirs which provide water for irrigation, water is still short, and yields are down. Puerto Rico is projected to produce 25,000 tons, about the same as 1996/97. Sugar Production in 1996/97 Sugar production in fiscal year 1996/97 is estimated at 7.25 million tons, raw value (table 24), 4.05 millions of beet sugar and 3.2 million tons of cane sugar. Beet sugar production for the first 10 months of 1996/97 (October-April) totaled 3.7 million tons, accounting for 91.6 percent of the forecast for the year. For the previous 3 years, beet sugar production in the first 10 months averaged 90.4 percent of the year's total. To meet the forecast, output in the last 2 production months of fiscal 1996/97, August and September, needs to be 340,000 tons, below the latest 3-year average for August and September of 400,000 tons, raw value. It is anticipated that beet slicing operations will start later than average this year. Cane sugar production for 1996/97 is estimated at 3.2 million tons, down 7 percent from the year before. Final sugar production levels, in million tons raw value, are as follows: Florida (1.68), Louisiana (1.05), Texas (.09), and Puerto Rico (.03). Hawaii produces sugar year-round, and through the first 10 months of fiscal 1997 (October-July) produced 228,000 tons. To meet the forecast of 360,000 tons, Hawaii will need to produce 132,000 tons in August and September, which is the same as the latest 3-year average for those 2 months. Even with lower acreage than last year, Hawaiian sugar production in August and September is expected to at least equal last year's because of good weather. Forecasting Sugar Production, Deliveries, and Stocks-to-Use Ratio Forecast projections are inexact but necessary to provide information for policy management. Monthly changes in projected season-ending stocks bear the brunt of changes in the other key variables in sugar supply and use (production and deliveries, for example). The 5-year average difference of September's projection from the final estimate is 16 percent over fiscal 1992 to 1996. Generally, as the fiscal year progresses, the difference from final tends to decrease. For comparison, the 15-year average September projection for U.S. season-ending stocks differs from the final estimate by 24 percent for corn, 42 percent for sorghum, and 12 percent for barley. Forecasts of beet sugar production in late summer vary due to changes in weather which affect yields, harvest timing, winter storage of the beet piles, and slicing activity through spring. Forecasts of deliveries vary due to changes in demand among end-users and relative prices. Figures 1-6 indicate the monthly differences of fiscal year (October-September) projections published in the Sugar & Sweetener Situation & Outlook report. The data are differences from the final actual figure, plotted beginning with the projection published in the June prior to each fiscal year. Consumption Sugar Deliveries Growth in 1997/98 Forecast at Long-Run Trend U.S. sugar consumption (measured by total sugar deliveries) for 1997/98 is forecast at 9.9 million tons, up 1.5 percent or 150,000 from the revised estimate for the current year. This growth rate is below the most recent 10-year average annual growth rate of 1.9 percent. However, sugar deliveries grew at an annual rate of only 1.4 percent for the latest 5-year period of 1991-96, compared with an annual rate of 2.3 percent for the previous 5-year period of 1986-91. Sugar Consumption During 1996/97 USDA's forecast of 1996/97 sugar consumption is 9.75 million short tons, raw value. Through the first 10 months of the 1997 fiscal year, October-July, deliveries were 7.95 million short tons, raw value, or about 81.5 percent of the forecast level. The latest 5-year average October-July deliveries as a share of the fiscal year total is 81.2 percent. If this average holds for fiscal 1997, deliveries would exceed the current forecast. In September 1996, there were shortages of sugar in some parts of the country, and deliveries were reduced significantly below what they would likely have been without the shortages. It is expected that there will not be any similar shortages this year due to plentiful stocks and indications that some buyers are requesting earlier than average purchases from new-crop sugar. The pattern of growth of quarterly sugar deliveries over the previous year is not stable (figure 8). However, the pattern of changes in quarterly deliveries over the immediately preceding quarter is much more stable (figure 7) and provide a better forecasting tool. For example, the current USDA forecast of U.S. sugar deliveries of 9.75 million tons for fiscal 1997 would require July-September deliveries of 2.63 million tons, which would represent an increase of 7.7 percent over the April-June 1997 quarter. This increase would be lower than 4 of the past 5 years, and is lower than the most recent 10-year average of 9.7 percent. Similarly, one can analyze the two 6-month periods of a fiscal year, October-March and April-September. As with quarterly deliveries, the pattern of 6-month delivery changes from the previous year varies a great deal (figure 10), while the pattern of 6-month delivery changes over the immediately preceding 6-month period is more stable (figure 9). For example, USDA's delivery forecast of 9.75 million tons for fiscal 1997 requires 5.06 million tons to be delivered during April-September 1997, up 8 percent over the October 1996-March 1997 period. The 10-year average increase of April-September over the preceding October-March is 6.3 percent. Table 13 has delivery details by month and quarter. Trade U.S. Raw Cane Sugar Import TRQ for Fiscal 1997/98 Set At 1.8 Million Metric Tons The initial raw cane sugar import tariff-rate quota (TRQ) for 1997/98 was set on September 17, 1997, at 1.8 million metric tons, raw value (1.984 million short tons). The raw sugar TRQ is allocated to 40 countries, including Mexico which is allocated under North America Free Trade Agreement (NAFTA) provisions. Under an administrative plan similar to that of fiscal 1996/97, three tranches of 200,000 metric tons each are reserved until January, March, and May 1998. In each of those months, if the ending stocks-to-use ratio published in the monthly World Agricultural Supply and Demand Estimates (WASDE) report is at 15.5 percent or lower (rounded to one tenth of a percent), then that month's 200,000-metric-ton tranche will be made available for allocation by the United States Trade Representative (USTR), otherwise it will be canceled. The entire 1.8 million tons of the announced raw sugar TRQ, minus any forecasted shortfalls, is forecast to be entered during fiscal 1997/98 in the monthly WASDE report, until or unless a cancellation is made. During fiscal 1997/98, USDA will continue to monitor the import requirements necessary to meet U.S. domestic demand and may, at any time, increase the size of the TRQ to ensure sufficient sugar supplies in the U.S. market. Further TRQ increases, if necessary, will be made on the basis of the most reliable supply and use information available. Any additional increase will not affect the stocks-to-use percentage trigger or any remaining allocations or cancellations of the originally announced TRQ. Shipping patterns were established on a quarterly basis for the largest three TRQ-holders, and on a semi-annual basis for the next nine largest TRQ-holders. Brazil, the Dominican Republic, and the Philippines will be allowed to ship up to 25 percent of their initial allocation during each quarter of fiscal 1997/98. Argentina, Australia, Colombia, El Salvador, Guatemala, Nicaragua, Panama, Peru, and South Africa will be allowed to ship up to 50 percent of their initial allocations in the first 6 months of fiscal year 1998. Unentered allocations, during any quarter or 6-month period, may be entered in any subsequent period. All other countries may ship their allocation at any time during the fiscal year. Should country allocations result from the January, March, and May stocks-to-use trigger, they may be entered subsequent to their allocation by the U.S. Trade Representative. Though there is an allocation of 25,000 metric tons, raw value, to Mexico under NAFTA provisions in both the raw cane sugar TRQ and the refined sugar TRQ, Mexico is limited to a combined total of 25,000 metric tons under both categories. Thus, total allowable entries in fiscal 1997/98 under the combined raw and refined TRQs is equal to 1.825 million metric tons (2.01 million short tons), which is the sum of the raw TRQ (1.8 million metric tons) plus the refined sugar TRQ (50,000 metric tons) minus 25,000 tons (to avoid double counting with regard to Mexico). The refined sugar TRQ of 50,000 metric tons, raw value, is allocated as follows: 25,000 metric tons under NAFTA provisions to Mexico; 10,300 metric tons to Canada; 2,954 metric tons to Mexico under a separate (non-NAFTA) agreement; and the remaining 11,746 metric tons on a first-come, first-served basis, of which 4,656 metric tons is reserved for specialty sugars. Total forecast imports, 2.37 million short tons, are comprised of the TRQ (2.01 million short tons), imports of liquid sugar under Harmonized Tariff Code 1702.90.4000 (50,000 short tons), quota-exempt sugar for re-export (300,000 short tons), and quota-exempt sugar for polyhydric alcohol (10,000 short tons). Recently, imports of a liquid sugar in tariff code 1702.90.4000 have been increasing. This category, outside the TRQ, is liquid sugar which has over 6 percent by weight of non-sucrose solids. Some of the entries under this category are raw cane sugar from Australia, which is liquefied in Canada and then trucked into the United States where some of the non-sucrose solids are removed, and the remaining low-grade liquid sugar is sold for use in certain food product formulations. Imports under this category were 16 million liters last year, over 8 million liters for January-June 1997, and 6 million liters in July 1997. Although the precise conversion to weight is not known, liquid sugar is heavier than water and 8 million liters would likely weigh at least 10,000 metric tons. The value of imports has increased to over $6 million in January-July 1997, from about $1 million in all of 1996. The import tariff on 96-degree raw sugar imports is 0.625 cents a pound, and 1.66 cents a pound for refined sugar. Countries with special preferences such as the Generalized System of Preferences (GSP), Caribbean Basin Countries (CBI), and Andean Preference countries have the low duty waived. The tariff on imports above the TRQ is 36.86 cents a kilogram (16.72 cents a pound) for raw cane sugar in 1997, and 38.90 cents a kilogram (17.65 cents a pound) on refined sugar. United States and Canada Settle Sugar Trade Dispute The United States and Canada reached an agreement on September 8, 1997, in which Canada will not challenge the use of the U.S. sugar-containing products re-export program. The United States has agreed to allocate to Canada its historical share of refined sugar and sugar-containing products in two TRQs, but overall Canadian access to U.S. TRQs remains unchanged. The terms of the settlement agreement stipulate that: o Beginning in fiscal 1997/98, the United States will allocate to Canada a share of the in-quota quantity of the U.S. TRQ for refined sugar (Additional U.S. Note 5(a) to Chapter 17 of the Harmonized Tariff Schedule) of 10,300 metric tons, raw value, for sugar that is a product of Canada. O A share of the in-quota quantity of the U.S. TRQ for sugar-containing products (Additional U.S. Note 8 to Chapter 17 of the Harmonized Tariff Schedule) of 59,250 metric tons (commercial weight of the products) for sugar-containing products that are the product of Canada. These products are typically dry crystal mixes, cake decorations, and confections. The total TRQ for the category is 64,709 metric tons. Canada will also be permitted to compete for any quantity of the refined sugar TRQ that is not allocated among supplying countries and is not reserved for specialty sugar, without regard to whether the share allocated to Canada for that period has been filled. The settlement agreement also allows the United States to transfer any unused quantity of Canada's sugar-containing products allocation to the portion of that TRQ that is not allocated among supplying countries, if Canada informs the United States that it cannot fill its share. The U.S. re-export program for sugar-containing products gives licensed manufacturers the ability to obtain sugar at the world price, provided that they re-export a like amount of sugar contained in products within 18 months. The volume of transfers under this program are forecast at 140,000 short tons for fiscal year (FY) 1997 and 100,000 tons for FY 1998. Stocks and Prices Beginning Stocks Projected Higher in 1997/98 Beginning stocks for FY 1998 are forecast at 1.55 million tons, up 62,000 tons from beginning stocks of 1.49 for 1996/97. According to USDA's Sweetener Market Data, compiled and published by the Farm Service Agency, sugar stocks on August 1, 1997, totaled 2.3 million tons, up 400,000 tons from a year earlier (table 17). Beet processors held 1.08 million tons, 47 percent of the total, up 389,000 tons from a year earlier, reflecting in part a larger crop, but also a desire to preserve stocks to fulfill sales commitments in the April-September period. The remaining stocks were held by cane mills, 591,000 (26 percent), and cane sugar refiners, 625,000 tons (27 percent). No stocks were held by USDA's Commodity Credit Corporation (CCC). Beet sugar processors are holding more stocks than last year when beet stocks were exceptionally low in some parts of the country. During the previous years when sugar marketing allotments were in effect, such as during FY 1995, some companies were essentially forced to hold stocks by the allotment mechanism, but now stockholding is a function of the production and marketing decisions of the companies involved. Wholesale refined beet sugar prices (f.o.b. plant, Midwest markets) have recently declined to 26.50 cents a pound from levels around 29 cents a pound earlier in the year. The prospective increase in sugarbeet acreage and the corresponding 400,000-ton rise in the forecast beet sugar crop is responsible for much of the softening in refined prices. U.S. raw sugar prices (nearby futures, c.i.f., duty-paid, Contract No. 14, New York) averaged 22.22 cents a pound in the first 11 market days of September, compared with 22.21 cents in August and 22.04 in July. In the 3 days following the TRQ announcement on September 17, raw sugar prices strengthened. Programs & Policy New Definition of Crop Year USDA has established a new definition of crop year, changing it from a July-June to an October-September basis, effective June 27, 1997. The purpose of this new definition is to be consistent with the fiscal year, thus providing a better fit for sugar program administration and analysis. Another result of the change is that processors will be able to pledge any sugar they have for CCC loans during the months of July, August, and September. These loans would be limited to a total of 9 months, and would need to be paid off September 30 and repledged October 1. Previously, only processors who normally harvest in those months could pledge sugar for CCC loans, and only on sugar from the new crop year. Commodity Credit Corporation (CCC) Loans During the 1996 crop year, a total of 577,000 tons of refined beet sugar was placed under loan through CCC USDA offices in Michigan, Utah, and Texas. As of August 26, 1997, 482,000 tons had been redeemed, and 95,000 tons remained under loan, all in Utah. Cane sugar placed under loan in Florida, Louisiana, and Texas amounted to 335,000 tons, raw value; and as of August 26, 216,000 tons had been redeemed, leaving 119,000 tons under loan, mostly in Florida. Hawaii has not utilized the CCC loan program in recent years. Sugarbeet and sugarcane loan rates for the 1997 crop year are unchanged from last year (table 23). Cost of Production Preliminary Cost of Production for the 1996 Crop Preliminary cost of production data are available for the 1996 crop for sugarbeets, sugarcane, and the processing of cane and beet sugar (table 46-51). The costs will not be final until after State-level crop prices are published next year. U.S. average cash costs per acre dropped about 4 percent for sugarbeets and 1 percent for sugarcane, while processing costs rose 3 percent for beet sugar and 2 percent for cane sugar. U.S. Corn Sweeteners Corn production in 1997/98 (September/August) is projected at 9.3 billion bushels, virtually unchanged from 1996/97. Corn plantings were up about 1 percent to 80 million acres. Food, seed, and industrial (FSI) use of corn in 1997/98 may total 1,780 million bushels, up 5.3 percent from 1996/97. Use in corn sweeteners is expected to increase 4.0 percent. Corn sweeteners represent over 8 percent of the projected domestic use of the 1997/98 crop, and 44 percent of FSI use. For 1997/98, corn used for high fructose corn syrup (HFCS) is expected to total 530 million bushels, up 5.0 percent from the previous year. Corn used for glucose syrup and dextrose is expected to total 245 million bushels, up 2.1 percent (table 38). U.S. HFCS production in calendar 1997 is projected to rise to 8.5 million short tons, dry basis, up from 8.2 million tons in 1996 (table 41). This projection is based on the 1991-96 trend, excluding the high and low years. HFCS production continues to expand with higher soft drink consumption, new types of beverages, and increases in HFCS production capacity. HFCS-55 production is forecast at 5.4 million tons, up 300,000 tons, and HFCS-42 at 3.1 million, up 25,000 tons. Text Box A Origin of the United States Sugar Import Tariff-Rate Quota Shares by Nydia Suarez The current U.S. tariff-rate quota (TRQ) on sugar imports had its origins in 1982. Presidential Proclamation No. 4941 of May 5, 1982, established a system of country-by-country sugar quotas to replace a previous quota system. Under the Proclamation, the U.S. Trade Representative (USTR) was responsible for making all announcements and determinations concerning country quota allocations, while the Secretary of Agriculture was responsible for making all announcements and determinations concerning quota periods and global quota amounts. Procedure Used To Obtain Country Allocations The following procedure was used to determine country sugar quota allocations. First, data on U.S. sugar imports (by country) for calendar years 1975-1981 were obtained from the U.S. Customs Service (tables 1 and 2). Second, refined sugar imports were converted to a raw value equivalent by multiplying refined sugar imports by 1.07. Total sugar imports are the sum of raw imports plus the raw value equivalent of refined imports. Third, the highest and lowest observations for each country were discarded and the remaining five observations for each country totaled. Fourth, the five-observation totals for each country were added to obtain a total for all countries. The fifth and final step was to divide each country's five-observation total by the total for all countries (table 3), creating the basis for each country's share. Initial Modifications to the Country-by-Country Quota System In the case of quota allocations for "other specified countries and areas," regulations were issued by the Secretary of Agriculture on August 11, 1982, to: 1) make specific allocations to a group named "other specified countries and areas" allowing each country classified in this group to ship either its pro rata share of .3 percent of the base import quota or 16,500 short tons, whichever was greater; 2) establish a certificate of quota eligibility (CQE) system; 3) shift from quarterly to annual quotas; and 4) modify the quota allocations. At the same time, Barbados, Trinidad-Tobago, Bolivia, India, Fiji, Zimbabwe, and Malawi were given individual percentage quota allocations. France, Anguilla, Antigua, Dominica, Grenada, Saint Lucia, Saint Vincent and the Grenadines, Montserrat, British Virgin Islands, Tonga, and Nauru were completely removed from the quota allocation system. This left Mexico, Haiti, Paraguay, Saint Christopher-Nevis, Madagascar, and Cote D'Ivoire as the remaining countries classified as "other specified countries and areas." It was found that the quota system established on May 5, 1982, had prevented the importation of certain refined sugars used for specialized purposes and originating in countries which did not have quota allocations. This led the Secretary of Agriculture on June 23, 1983, to announce in the Federal Register that the base import quota for the period October 1, 1982-September 30, 1993 was increased from 2,800,000 short tons, raw value to 2,802,000 short tons, raw value, to allow the importation of 2,000 short tons, raw value of specialty sugars. The USTR announced that the quota for imports of specialty sugar would be allocated at 80 short tons, raw value, for each of the following 25 countries: Belgium; Burma; Cameroon; People's Republic of China; the Congo (Brazzaville); Denmark; France; Federal Republic of Germany; Hong Kong; Indonesia; Ireland; Italy; Japan; Kenya; Luxembourg; Uruguay; Netherlands; Netherlands Antilles; South Korea; Surinam; Sweden; Switzerland; United Kingdom; Venezuela, and Yemen. There have been occasional adjustments, mostly temporary, in the country quota allocations during the last 15 years, for example for Nicaragua, South Africa, and Haiti. In September 1983, the USTR added the Congo (Brazzaville) and Uruguay to the category known as "other specified countries and areas," increasing the number of countries in this category from six to eight, and removed these two countries from the list of countries with a specialty sugar import quota allocation. Later in September 1983, Gabon and Papua New Guinea were added to the list of "other specified countries and areas," bringing to 10 the number of countries in that group. This set of countries is sometimes referred to as the "minimum boatload" group. It was found that the origin of some of Malawi's shipments to the United States during calendar years 1975-1981 was not correctly identified. The error resulted in a percentage allocation for Malawi which is .3 percent less than it would otherwise have been, and Malawi's share was subsequently adjusted. Modifications to the Sugar Quota System in the 1990's Effective October 1, 1990, the United States modified the previous absolute quota system, replacing it with a TRQ. Under the TRQ, a limited level of imports is allowed to enter the United States at a low (first tier) tariff; any imports beyond that level are assessed a high (second tier) tariff which is practically a prohibitive rate. The country allocation system was left in place. In the tariff schedule submitted by the United States, which implemented the results of the Uruguay Round GATT negotiations, effective January 1, 1995, the country allocations were not specified in the U. S. Harmonized Tariff Schedule. The United States agreed in the Uruguay Round to provide low-duty access for a minimum of 22,000 metric tons, raw value, of sugars which are usually referred to as "refined sugar," and 1.117 million metric tons, raw value, of raw cane sugar. A country-by-country allocation system continues to be used for the raw cane sugar TRQ imports. For the refined sugar TRQ, the country-by-country allocations were dropped beginning in fiscal year 1996 in favor of a globalized (first-come, first-served) system. Beginning in fiscal 1997, imports of specialty sugar under the refined sugar TRQ, previously allocated to 23 countries, were also globalized. Beginning with fiscal 1998, Canada and Mexico have been given individual allocations of the refined sugar TRQ, the rest of which remains globalized. Text Box B Changing Structure of the U.S. Refined Sugar Market Ron Lord & Robert D. Barry There has been increased concentration among U.S. sellers of refined sugar in recent years. When most of the assets of Spreckels Sugar Co. were acquired by Imperial Holly Corp. in 1996, the number of refined sugar companies in the United States dropped from 10 to 9 (table 41). The nine can be classified as beet, cane, and combination beet-and-cane ("straddle") sellers. In 1997, the three beet companies are Monitor Sugar Co., in Michigan; Amalgamated Sugar Co., in Idaho and Oregon; and United Sugars Co., in Minnesota. United Sugars was formed in 1994 to market the sugar of the three beet sugar producing cooperatives in Minnesota and North Dakota. The three refined cane sugar sellers are Florida Crystals, in Florida (also a producer and seller of raw cane sugar); Refined Sugars Inc., in New York; and California and Hawaiian (C&H) Sugar Co., in California. Then there are the three "straddle" companies which produce and sell both refined beet and cane sugar: Tate & Lyle, which owns Domino Sugar Co. (cane) and Western Sugar Co. (beet); Savannah Foods & Industries, which owns Savannah Sugar Co. (cane) and Michigan Sugar Co. and Great Lakes Sugar Co. (beet); and Imperial Holly Co., which owns Imperial Sugar Co. (cane), Holly Sugar Co. (beet), and Spreckels Sugar Co. (beet). Several developments in 1997 portend significant changes in the business of sugar marketing. In the spring, a large sugarcane processor in Florida, the U.S. Sugar Corporation, announced that it would build a sugar refinery on the property of its Clewiston, Florida, sugarcane mill, with capacity of around 500,000 tons of sugar per year and the potential to expand further. The refinery is expected to be in operation in early or mid-1998. The total capacity of the U.S. cane sugar refining industry is currently about 6.8 million tons a year, and the U.S. Sugar Co. facility would add another 7 percent. The annual demand for cane sugar in the United States is essentially a residual between total sugar demand and beet sugar production. Although a simplification of reality, it can be assumed that all beet sugar produced will be sold. In the last 2 years, the combination of lower beet sugar production and increasing demand has resulted in larger imports of raw cane sugar, higher utilization of cane sugar refining capacity, and higher cane refiner margins. Increased future market share for cane sugar, and thus a need for more cane refining capacity, will occur only if sugar demand growth exceeds beet sugar production growth. The annual trend growth in sugar demand over fiscal years 1986-1996 has been 160,000 tons, raw value, compared with a trend growth in beet sugar production over the same 10 years of 102,000 tons a year. If this trend continues, there would be an average annual increment of about 60,000 tons in cane sugar requirements. The entry of the U.S. Sugar Co. into the refining business might have increased the number of sellers of refined sugar to 10. However, it was subsequently announced that all of U.S. Sugar Co.'s refined sugar will be marketed by United Sugars Co., which currently markets the beet sugar for the three beet sugar cooperatives in Minnesota and North Dakota. If this proposed arrangement occurs, United Sugars Co. would account for over 20 percent of the refined sugar market (table 4), and would be able to increase its presence in the southeastern and eastern parts of the country. In another development, United Sugars Co. has announced a licensing agreement with Pillsbury Company to create and market a Pillsbury Best brand of sugar. Savannah Foods and Industries, Inc., the second largest cane refiner in the United States (table 4), has announced its intention to be acquired by Imperial Holly Co. Earlier in July, Savannah had agreed to merge with Florida Crystals, Inc., a fully integrated cane producer and refiner in Florida. If the Imperial bid for Savannah is successful, the combined companies would be the largest seller of refined sugar in the United States, accounting for about a third of the market. If the refined sugar output of the U.S. Sugar Co. reaches 500,000 tons as announced, United Sugars would likely be the second largest seller of sugar behind the merged Imperial-Savannah Company, with the Tate & Lyle group (Domino cane sugar, and Western beet sugar) a close third. One measure of the concentration of an industry is market share. For sugar, as measured by production capacity, the share of the top four companies has risen from 51 percent in 1983, to 60 percent in 1989, and 74 percent in 1997 (table 41). With the pending Imperial-Savannah merger and the prospective joint marketing arrangement of United Sugars and U.S. Sugar Co. in 1998, the concentration index for the top four companies could rise to about 83 percent next year. Text Box C HFCS Trade Dispute With Mexico Jacqueline Salsgiver In early 1997, Mexico's National Sugar Industry Chamber, the association of Mexico's sugar producers, accused U.S. corn wet millers of dumping high fructose corn syrup (HFCS) in Mexico. Mexico's Commerce Secretariat, SECOFI, responded by imposing temporary tariffs on U.S. HFCS in June. The temporary tariffs, ranging from $66.57 to $175.50 per metric ton on two grades of HFCS, apply to shipments from Cargill Inc., A. E. Staley Manufacturing Co., CPC International Inc., and Archer Daniels Midland Co. The Corn Refiners Association (CRA) representing the U.S. producers of HFCS, has argued that only producers of HFCS in Mexico, and not sugar producers, should have legal standing to bring a dumping claim against imported HFCS. The World Trade Organization (WTO) may be asked to settle the dispute between the United States and Mexico if the two sides cannot resolve the issue. If U.S. HFCS producers win the trade dispute, Mexico's imports of HFCS will likely continue to grow. U.S. HFCS exports to Mexico have increased throughout the 1990s, with exports of 132,000 tons, dry basis, during October 1996 to June 1997 (figure 13). Mexico's utilization of HFCS, including domestic production, is approximately 300,000 tons this year. Mexico's sugar producers are concerned that increased use of less expensive HFCS will replace domestically produced sugar. Switching from sugar to HFCS could result in cost savings to industry since HFCS costs 10 to 20 percent less than sugar. About 1.5 million tons of Mexico's total caloric sweetener use of 4.4 million tons is for beverages and other uses which could utilize HFCS. However, many of the industrial users of sugar, such as some of the largest soft drink bottlers, are integrated with sugar producers and have less incentive to switch to HFCS. More than half of the domestic supply of sugar is used for household consumption, which could not be substituted by HFCS. The switch to HFCS in the United States in the 1970s and 1980s was accommodated by reducing imports through a tariff-rate quota system. For Mexico, the prospective switch to HFCS would require increased sugar exports due to the decline in domestic sugar consumption. Mexico's sugar industry attempts to control supply in the higher-priced domestic market, while exporting the remainder at the lower world price. The United States is an attractive export market for Mexico's sugar, since the U.S. price is appreciably higher than the world price or Mexico's current price (figure 14). The provisions of NAFTA relating to HFCS include the phasing out of Mexico's duties from 15 percent initially to zero over 10 years. The scheduled NAFTA duty for 1997 is 9.0 percent. The sugar provisions in NAFTA, including a side letter, link duty-free sugar trade access amounts to a "net surplus producer" formula. The net surplus is calculated as the sum of sugar and HFCS consumption minus the production of sugar. For the first 6 years, through September 30, 2000, duty-free access is limited to the amount of the "net surplus" but not more than 25,000 metric tons, raw value. After October 1, 2000, duty-free sugar access is limited to the amount of net surplus, but not more than 250,000 metric tons, raw value. The NAFTA duty on sugar trade above the duty-free levels declines gradually to zero on January 1, 2008. Mexico has been a net exporter of sugar since 1994 (figure 11). Production has been increasing throughout the 1990's since the mills were privatized earlier in the decade. Net exports for 1997/98 are forecast at a revised 650,000 metric tons. While Mexico's sugar production has been increasing, consumption has trended downward (figure 12). As of mid-September 1997, the U.S.-Mexico HFCS trade dispute continues. At this time, Mexico's sugar industry is reported to be proposing voluntary limits on the use of HFCS in soft drinks in Mexico. Industry groups in the United States contend that such agreements may violate provisions of NAFTA which deal with "anti-competitive" practices. List of Tables Page 1. U.S. imports of raw sugar, 1975-81 calendar years 2. U.S. imports of refined sugar, 1975-81 calendar years 3. U.S. sugar imports, 1975-81 calendar years and calculation of import shares 4. U.S. sugar production capacity, by company, 1997 5. U.S. cane sugar refiners: Company, factory location, and capacity 6. U.S. beet sugar processors: Company, factory location, and capacity 7. HFCS production capacity in North America 8. North American HFCS production capacity: Shares by company 9. U.S. sugarbeet crops: Acres harvested, yield per acre, and production, by State and region, 1990-97 10. U.S. sugarcane: Area, yield, production, output, recovery rate, and sugar yield per acre, crop years 1989/90--1997/98 11. U.S. production of beet sugar and cane sugar by State, monthly, quarterly, fiscal, calendar, and crop year 12. U.S. sugarbeet area, yield, and production, 1985-97 13. U.S. cane and beet sugar deliveries, monthly, quarterly, and by fiscal and calendar year 14. U.S. sugar deliveries for human consumption by type of user, quarterly and calendar year 15. U.S. sugar imports under tariff-rate quota (TRQ), by country 16. U.S. imports of sugar syrup, harmonized tariff code 1702.90.4000, monthly, 1993-97 17. U.S. sugar stocks held by primary distributors, by quarters 18. Monthly estimates of fiscal 1994 U.S. sugar supply and use 19. Monthly estimates of fiscal 1995 U.S. sugar supply and use 20. Monthly estimates of fiscal 1996 U.S. sugar supply and use 21. Monthly estimates of fiscal 1997 U.S. sugar supply and use 22. Monthly estimates of fiscal 1998 U.S. sugar supply and use 23. Sugar loan rates and support levels, by region and States, fiscal years 24. U.S. sugar (including Puerto Rico) supply and use, fiscal years 1991/ 92-97/98 25. Sugarbeet prices, by State, 1985-96 26. Sugarbeet and sugarcane prices and crop values, crop years 27. World refined sugar price, monthly, quarterly, and by calendar and fiscal year 28. World raw sugar price, monthly, quarterly, and by calendar and fiscal year 29. U.S. raw sugar price, duty fee paid, New York, monthly, quarterly, and by calendar and fiscal year 30. U.S. wholesale refined beet sugar price, Midwest markets, monthly, quarterly, and by calendar and fiscal year 31. U.S. retail refined sugar price, monthly, quarterly, and by calendar and fiscal year 32. U.S. spot price for HFCS-42, Midwest markets, monthly, quarterly, and by calendar and fiscal year 33. U.S. wholesale list price for glucose syrup, Midwest markets, monthly, quarterly, and by calendar and fiscal year 34. U.S. wholesale list price for dextrose, Midwest markets, monthly, quarterly, and by calendar and fiscal year 35. U.S. Consumer Price Index for sugar and selected sweetener-containing products 36. U.S. producer price index for HFCS and sugar, monthly 37. U.S. corn supply and use 38. U.S. wet-milled use of field corn, crop year 39. U.S. (including Puerto Rico) total consumption of caloric sweeteners, calendar year 40. U.S. (including Puerto Rico) per capita consumption of caloric sweeteners, calendar year 41. U.S. high fructose corn syrup (HFCS) production, quarterly, fiscal, and calendar year 42. U.S. high fructose corn syrup (HFCS) supply and use, calendar year 43. Net cost of corn starch to U.S. wet-millers, Midwest markets 44. U.S. corn sweetener exports to Mexico and Canada, fiscal years 1991-96 and October 1996-June 1997 45. U.S. corn sweetener imports from Mexico and Canada, fiscal years 1991-96 and October 1996-June 1997 46. U.S. sugarbeet production cash costs and returns, 1995-96 47. U.S. sugarbeet production economic costs and returns, 1995-96 48. U.S. sugarcane production cash costs and returns, 1995-96 49. U.S. sugarcane production economic costs and returns, 1995-96 50. U.S. beet sugar processing costs, cents a pound of refined sugar, 1995-96 51. U.S. cane sugar processing costs, cents a pound of raw sugar, 1995-96 END_OF_FILE