Informe Semanal English Version

Sugar Agro-industry at 18 May 2009

• Official estimates at 5 million tons

• The sugar balance looks very tight

• The salvation – temporary exports

• We won’t export in the 2009/2010 cycle

• 2008/2009 Preliminary harvest report at 9 May

• Weekly market

While a commission of Mexican entrepreneurs traveled to Washington DC to address bilateral issues pertaining to the sugar industry of both countries, in Mexico the National Commission for the Sustainable Development of Sugar Cane (CNDSCA) was calling urgent meetings with the “sugar chambers” – the official one and the non-official one – independently of each other – to discuss the sugar balance for this year, as well as the lobbying by the sugar industry, to guarantee the sugar supply for the domestic market. In brief, to analyze the appropriateness of imposing import quotas.

The USA is following this process very closely. As we stated last Thursday in our daily report, global production will suffer a drop of almost 9 million tons this cycle (production vs. consumption) compared to the previous cycle. However, it could recover to the tune of some 7 million tons in the 2009/2010 harvest cycle, thanks especially to the expected Brazilian production. The US market will continue to have drops in production and low inventories, and will be awaiting Mexico’s final numbers as well as its estimates for next year in order to set its import quotas. Without a doubt, these will increase. This means that international prices will maintain their upward trend.

Mexico cannot lose its status as a net sugar producer in order to keep its current trend of exports to the US market. This is one of the issues being looked at in Washington. Other issues are IMMEX sugar and re-exports from the USA to Mexico and finally the “shielding” of the area against possible imports from producer countries in the northern hemisphere. The motto could be “North America for the North Americans”.

The fall in domestic production could create big problems. The half a million less tons of sugar that will be produced in this harvest as compared to the previous one could affect the domestic sugar balance for this year and have effects on next year’s harvest.

In conversations that Carlos Blackaller held with the press, he said that Mexico will supply half a million tons less sugar given the scarce quantity of sugar produced by the 15 supplier states in the country. As a result of the significant losses in the sugar industry, calculated at 3.5 billion pesos, together with a final inventory in September at around 835 thousand tons, it is estimated that there will be a deficit with regards to consumption between October and December. This is consistent with the numbers suggested by Blackaller and will give us an image of the sugar industry in the country.

Looking at the future, we can provide an estimate for the 2009/2010 harvest. For starters, there is an inventory of around 835 thousand tons. On top of this we add an expected production of around 5.2 to 5.3 million tons, which is not as bad as this year’s but nor is it the size of the 2007/2008 harvest. It is clear that we will not be able to recover the levels observed in previous years. The crucial aspect is that if the country wants to keep its status as an exporter, it will have to maintain very low inventory levels which endanger domestic supply. If inventory levels held at the end of this year are expected to be the same at the end of next year, Mexico will only be able to export a little less than 100 thousand tons. Otherwise, if stock levels are to be higher, Mexico will hardly be able to export anything next year.

Nevertheless, we have omitted a key issue. Not everything that has been exported this year represents a “definite” export. Between October 2008 and March 2009 according to the US Customs Service, Mexico has exported 649,508 tons of sugar, of which 98,722 tons are temporary, which means that exporters must replenish them in domestic markets. But from where? The US sugar industry would like to see it as this was their sugar, ignoring their deficit situation. They say “you sold to us at a high price and now you want to buy cheaper sugar from Brazil or Guatemala”. This is an on-going discussion. At the end of the day, if exports are close to estimates by both Mexico and the US of between 850 and 950 thousand tons, somewhere around 220 thousand will enter under the category of temporary imports.

These are the most important issues at stake in the agenda. This is why the CNDSCA has asked the industry to try to limit exports as much as possible this year, together with carrying out arrangements for the re-importation of temporary imported sugar (those involved are La Gloria, Motzorongo, GAM, Beta and Santos) and that they start the next harvest cycle without problems, with as much of an early start as possible. This is consistent with what Carlos Blackaller has suggested.

2008/2009 Preliminary Harvest Report at 9 May
At 9 May the preliminary harvest report registered a harvested area of 619,194 hectares (has), 71,403 more than in the previous harvest, an industrialized volume of crushed sugar cane of 40.68 million tons, almost three million less than in the last cycle. To date 4,74 million tons of sugar have been produced, 270 thousand less than the previous harvest, 5.7% less up to the present time. Out of this total, 1,574,334 tons are refined, 3,168,735 tons are standard (including special white and muscovado), 1.4 million tons are molasses and there are 14.1 million liters of alcohol. The alcohol production from the La Gloria mill’s factory, which has not been reported by this mill and which therefore does not appear in the preliminary harvest reports, would have to be added to this total, a volume of approximately 26 million liters. Siap-Sagarpa reports that to date, 28 mills have finished harvesting with only 26 still in operation.

Weekly market
Prices have stayed stable in the different supply centers. On average floor prices are at 330 pesos per 50kg bulk of standard grade and 378 pesos for refined grade. These floor prices lead us to a wholesale spot price of sugar of between 320 and 322 pesos per 50kg bulk of standard grade and between 355 and 370 pesos per 50kg bulk of refined quality, depending on the market. In Guadalajara the price is higher than in Mexico City. The mill price of standard grade is 305 pesos while refined is between 350 and 370 pesos, depending on the region and on the traded volume. This is higher than that reported by the Forma Trust Fund.
Of the total sugar exported between October and March, around 45% has been refined, because this is what is most in demand in the United States market. Since last year, Mexico has lost at least a million tons in terms of its refined capacity. It is forecast that refined sugar will continued to be exported this year. There could be a drastic drop next year because of the fall expected in domestic production. Nevertheless, the mills that exported sugar in a “temporary” manner, will look to basically re-import refined and/or other grades between 100 and 150 icumsas in color, something favorable for special white sugar.
Price increases are expected to continue, in spite of the contracts signed by government controlled sugar mills and the Trade Trust Fund (FICO), which are expected to counteract market prices as a result of the discounts agreed on between various distributors. Independently, some of the sugar mills take advantage of the special prices agreed with FICO for certain industrial clients in order to divert the sugar to more liquid markets, supply centers and packers. At the same time, we must account for the fact that there are significant inventories in the hands of retailers that could hold back better sugar prices for sugar and for sugar mills.

The statistical tables in this report can be consulted in the “statistics” button in Excel. The same will be possible for the English version in the near future.