Large U.S. food companies have been pushing the Obama administration to ease sugar import curbs, citing forecasts for unprecedented sugar shortages that could result in higher retail prices and possible job losses.
In a letter to U.S. Agriculture Secretary Tom Vilsack dated August 5, companies and groups that include Kraft Foods Inc, General Mills Inc and Hershey Co warn that our nation will virtually run out of sugar, if a USDA forecast is accurate.
The letter was written a week before the Agriculture Department on Wednesday said the closely watched stocks-to-use ratio in the U.S. sugar market for 2009/10 stood at 6.7 percent, up from 3.4 percent in last month's report.
The situation is seen easing because of increased beet sugar and cane sugar production, according to the USDA.
U.S. sugar industry officials say importing sugar into the United States would not be cost effective because there is now little difference between the world price and the price in the U.S. domestic market.
In any event, analysts say, rising sugar costs are unlikely to boost prices of food products because prices for other ingredients such as grains have declined since last year.
Still, the USDA prefers the stocks ratio at 15 percent and the government has used a figure below that level as a reason to order imports, as it did in August 2008.
The Sweetener Users Association, representing companies that use sugar, called on Thursday for an increase in the U.S. sugar import quota of 450,000 short tons for this marketing year, which ends on September 30.
The association said the sugar supply will be unduly tight despite USDA's forecast of slightly larger domestic output.
Food industry analysts say inflation should be contained for an industry that sharply increased prices in the past year as costs for commodities such as vegetable oil, wheat and corn surged.
Many commodity prices have retreated, and manufacturers are trying to defend the price increases as consumers and retailers try to rein in costs in a weak economy.
For every ingredient that has gone up in price, there's probably two or three that have gone down in price, D.A. Davidson analyst Timothy Ramey, said.
Lee Linthicum, global food research manager at Euromonitor International, likened the food industry's concern over sugar prices to warnings manufacturers raised when oil futures rose to about $140 a barrel last year. NYMEX light crude futures traded at $71.51 on Thursday.
Nobody thought that oil would ever go below $100 a barrel ever again and now, look where we are, he said.
Sugar prices have been at record highs as a weak monsoon season raises concern about production in India and Brazil.
India, the world's largest sugar consumer, swung to a net importer this year from a net exporter last year after a poor domestic harvest, and a weak monsoon augurs for another disappointing crop in 2009/10.
Slow harvesting in Brazil after recent rainfall is also expected to damage yields and Brazilian mills are hard hit by the credit crunch, limiting their capacity to step up production to meet the resilient global demand, analysts say.
Current import quotas limit the amount of tariff-free sugar the food companies can import in a given year, except from Mexico.
American sugar growers reject claims by confectionary companies that the United States is running short of sugar, arguing that supplies will improve as the U.S. beet and cane harvest gets underway. In the case of cane, that would be later this month and beets are harvested at the start of October.
There is absolutely no shortage of sugar here, Jack Roney, director of economic and policy analysis of industry group American Sugar Alliance.
Supplies from domestic harvest are about to flood the market, he said. If we run short, we can increase the TRQ, he said, referring to the tariff import program under which more than 20 countries take part in importing sugar to the United States.
Shares of Kraft were down 26 cents at $28.24 on Thursday on the New York Stock Exchange, while General Mills' were down 52 cents at $57.32 and Hershey's were up 10 cents at $38.48.
(Additional reporting by Rene Pastor in New York and John Tilak in Bangalore; Editing by David Gregorio)