UPDATE 1-To boost prices, USDA sells surplus sugar to feedmakers

Fri Dec 13, 2013 5:33pm EST

(New throughout, adds analyst comments, background on winning bidders)

WASHINGTON Dec 13 (Reuters) - The U.S. government, facing the highest sugar subsidy costs in a decade, emptied its stockpile of surplus sugar on Friday, selling the sweetener for a bargain 5 cents a lb to companies that market beekeeping equipment and cattle feed supplements.

With the sale, the Agriculture Department moved excess sugar out of the food supply in a step to bolster low futures prices. A large U.S. surplus is forecast for 2014, the second year in a row.

"The USDA had to get rid of it, so we had a fire sale," said Sterling Smith, a futures specialist with Citigroup in Chicago. "The global glut is still the biggest problem. We're going to have excess production again next year."

Spot U.S. domestic raw sugar prices on ICE Futures U.S. traded at less than 20 cents a lb on Friday, and ICE global raw sugar futures hit a near four-month low of 16.22 cents a lb.

Man Lake Ltd, of Woodland, California, which sells beekeeping equipment and feed, bought 56 percent of the 79,750 tons that were offered by USDA.

Quality Liquid Feeds, of Dodgeville, Wisconsin, which makes feed supplements for beef and dairy cattle, bought the rest.

Overall, the sale brought USDA $8.2 million, compared with the estimated subsidy cost of $280 million for the 2012 crop, highest since $465 million in 2000. The average price of 5 cents a lb for the sugar was far below the 20.9 cents guaranteed to growers.

Growers forfeited 381,875 tons of sugar pledged as collateral rather than repay USDA price-support loans because of persistently low market prices.

USDA employed a variety of tools to combat the surplus. It used, for the first time, a program that sold surplus sugar to ethanol makers and it swapped sugar for credits that allow processors to bring sugar into the country for refining and re-export.

After the third of the sugar-for-ethanol sales, USDA offered the remainder of its stockpile for ethanol "and other nonfood uses."

With the sale to Man Lake and Quality Liquid Feeds, USDA said its "successfully sold its entire remaining inventory."

On Tuesday, USDA lowered its forecast of the sugar surplus by 423,000 tons, or 18 percent, due to its sales to ethanol makers and smaller imports from Mexico. Still, the surplus at the end of the marketing year on Sept 30, 2014, would be nearly 2 million tons compared to consumption of 12 million tons.

Congress is in the final stages of overhauling the U.S. farm subsidies and is not expected to alter the sugar program. Under it, USDA regulates imports and marketing of domestically grown sugar to assure growers of a minimum price while operating at no net cost to taxpayers. (Reporting by Charles Abbott in Washington and Chris Prentice in New York; Editing by Bob Burgdorfer)