Not So Sweet: U.S. Sugar Sales To Asia Unlikely To See Boom

December 21, 2007

Will the U.S. find future prosperity in selling low-tech commodities abroad to countries manufacturing high-tech products?

  • The situation with sugar indicates otherwise
  • A global sugar surplus continues
  • Stiff competition from other countries

Many a negative nabob is grumbling these days about the weak dollar, our burgeoning debt and other downers. And in the other corner, we have those who see the glass half full – with sugar, for example.

The same people who are outselling us in our retail outlets, namely Asian countries, these optimists insist, will need the old basics from us - stuff for making clothes or dinner, for instance. Sugar is one of those reliable commodities. We make it and export it. So maybe the low-tech, good ol’ simple products of yesteryear - as opposed to the complex structured products that give us migraines today - will pull us out of the high-tech morass that buried us this summer.

It sounds like a solid plan. But, alas, there are a few obstacles. Sugar is in surplus supply right now. World sugar production in the 2007/2008 crop cycle, says the International Sugar Organization (ISO), is expected to reach a record 169.584 million tons, up 4.076 million tons over last season.

Currently, the world’s largest sugar producer is India. ISO, also in its August report, says India’s 2007/2008 production is forecast at a record 33.150 million tons, with a raw value up 2.550 million tons from the previous season. And the organization is predicting similar record-breaking numbers for China, Indonesia, Pakistan and Thailand.

So let’s look at China again. According to an Oct. 20, 2007, report from the Xinhua News Agency quoting the General Administration of Customs, “China imported 691,000 tons of sugar in the first seven months of this year, a growth of 5.3 percent year-on-year.” And that’s good. However, “The average import price fell 27 percent to 313.2 dollars per ton for the seven-month period,” the agency quoted customs sources saying. “The imports were valued at $220 million, down 23.1 percent from a year earlier,” which the news agency attributed not to the weak dollar but to oversupply on international markets. There’s that supply issue again.

And exactly where are those Chinese imports coming from? The Xinhua report says of the total imports, 660,000 tons, or 95.5 percent, came from Cuba, Thailand, Guatemala, the Republic of Korea, Brazil and Australia. Even the imports from Cuba, Brazil and Australia went down, while those from Thailand and Guatemala went up. They’d have to really work those field reps to improve the U.S. position on this list.

According to ISO, “this is the second season of record-high global surplus with an extremely high level of stocks and export availability significantly exceeding import demand...” And its outlook is not promising for U.S. sugar sales. “It is difficult to expect any big revival in prices in the next 12 months. Fundamentally, the market remains hugely oversupplied and should remain weak.”

However, U.S. sugar production steams on. The USDA projects overall FY 2008 U.S. sugar production at 8.451 million short tons, raw value (STRV), an amount close to the FY 2007 total. However, beet sugar production is projected at 4.791 million STRV, a decrease of 211,000 STRV from the previous year. FY 2008 cane sugar production is projected at 3.659 million STRV, an increase of 227,000 STRV from the previous year.

There could be untapped opportunities for the U.S. in the vast world of commodities, but it seems unlikely that the sugar industry - where the U.S. is adding supply to an already oversupplied market - will be where they are found.

Sugar futures are traded on the Bolsa de Mercadorias & Futuros (BM&F), Kansai Commodities Exchange (KANEX), the Tokyo Grain Exchange (TGE), the London International Financial Futures and Options Exchange (LIFFE), and the CSCE Division of the New York Board of Trade (ICE). Options are traded on the BM&F, the TGE, the LIFFE and the ICE.

Raw sugar is traded on the CSCE Division of the New York Board of Trade, while white sugar is traded on the LIFFE.

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