USDA asks White House to approve sugar-for-ethanol program

WASHINGTON Mon Apr 8, 2013 3:01pm EDT

A worker cuts sugar cane for raw sugar and ethanol fuel production on the property of the Sao Martinho mill in Pradopolis, about 300 km (186 miles) northwest of Sao Paulo in this July 6, 2007 file photo. REUTERS/Rickey Rogers/Files

A worker cuts sugar cane for raw sugar and ethanol fuel production on the property of the Sao Martinho mill in Pradopolis, about 300 km (186 miles) northwest of Sao Paulo in this July 6, 2007 file photo.

Credit: Reuters/Rickey Rogers/Files

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WASHINGTON (Reuters) - The White House will decide in coming weeks whether to attempt to blunt low prices in the U.S. sugar market by buying hundreds of thousands of tons of surplus sugar and selling it at a loss to ethanol makers.

If approved, it would be the first time the sugar-for-ethanol program, created in 2008 and known as the Feedstock Flexibility Program, has been put into operation.

The U.S. Agriculture Department sent its proposal to the White House budget office for approval at the end of last week.

Large crops in the United States and Mexico have pushed New York futures prices below the trigger price for potential forfeiture by processors of sugar to the government.

The sugar is used as collateral on USDA price-guarantee loans.

Forfeitures could begin in July, with the expiration of USDA loans that guarantee growers will get at least 20.94 cents per lb for sugar. The remainder of the loans expire in September.

"We're doing it because it's the law," U.S. Agriculture Secretary Tom Vilsack said on Monday at the North American Agricultural Journalists meeting. The tonnage purchased "is still not decided," he said.

Analysts said USDA needs to have a program in place by June to divert sugar from the market so prices would rise.

The 2008 farm law directs USDA to make surplus sugar available to ethanol makers, a provision penned in the early days of the biofuel boom with the goal of creating feedstocks in addition to corn.

"The law makes the Feedstock Flexibility Program the first line of defense. The other main option is to reduce the volume of imports through negotiation or by buying back certificates of quota eligibility," said Tom Earley, economist and trade policy specialist with consulting firm Agralytica.

Some $864 million in loans was in danger of forfeiture, by one estimate. The USDA forecasts the sugar stockpile at the end of this marketing year at 2.4 million tons.

At 20 percent of annual use, it would be the largest carryover since 2001. The USDA will update its forecast of the sugar surplus on Wednesday.

The White House budget office has a 90-day target for reviewing proposed regulations, but there is no fixed timeline. Some rules get rapid approval, others require months of examination, and some are returned to agencies for more work or are rejected outright.

The sugar-for-ethanol program could be the lowest-cost way for the USDA to meet its obligation by law to assure a minimum price to U.S. sugar growers.

During the last major glut, in fiscal 2000, forfeitures cost the USDA $465 million for a program that is intended to run at no net cost to taxpayers.

(Reporting by Charles Abbott, additional reporting by Chris Prentice in New York; editing by Ros Krasny, Lisa Von Ahn and Bob Burgdorfer)

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