By Marina Lopes and Chris Prentice
NEW YORK Nov 11 Corn syrup producers are
scrambling to defend their once-dominant share of the U.S.
sweetener market, offering rare price cuts for next year as
tumbling sugar prices erode the advantage of typically cheaper
Commodity merchants Cargill Ltd and Archer
Daniels Midland Co are kicking off negotiations with
high-fructose corn syrup customers over next year's supply
contracts with price cuts of 10 percent, according to letters
seen by Reuters.
A switch to sugar would further erode corn's role in the
sweetener industry, which had already begun to shrink in recent
years as studies linking high fructose corn syrup with obesity
turned off consumers. Yoplait, General Mills Inc's
yogurt giant, removed it from their products in 2013 because of
Corn syrup remains the most popular sweetener with a market
share of 52 percent, having secured the market over the past
three decades as high U.S. sugar prices prompted many major
beverage companies to search for cheaper alternatives for use in
However, its competitive cost edge is now under threat.
Although corn prices have tumbled this year ahead of a record
2013 harvest, U.S. sugar prices are languishing at multiyear
lows as the North American market remains awash in supplies.
In January, spot refined sugar prices fell to a discount
against equivalent high-fructose corn syrup prices for the first
time ever, according to data compiled by the U.S. Department of
Agriculture going back to 2000.
Traders cautioned that the spot market for corn syrup is
thinly traded and that 2013 contract prices were already lower
than spot trading prices.
But the trend is clear: sugar has never traded so closely
with its corn counterpart.
"If a corn wet miller decided to raise prices or take a hard
line (in negotiations), there is a very real threat a buyer
could convert back to sucrose," said a U.S. trader.
PRICE TALKS KICK OFF
In an Oct. 28 letter, Cargill's corn milling business led
the market by setting 2014 Midwest prices at $25 per cwt on a
delivered basis for the high-fructose corn syrup formulation
that dominates the bottler market
ADM's corn processing unit followed by reducing prices for
2014 contracts by $2.75 a hundredweight from 2013 levels,
according to a letter to customers dated Nov. 1.
Those prices are down 10 percent from 2013 contract list
prices of about $28-$29 per cwt, or a sugar equivalent price of
$21.56 to $22.33 per cwt, traders said.
Spokespeople for both companies declined to comment.
Corn syrup was first introduced for mass consumption in
1970. By 1984, The Coca Cola Co and PepsiCo Inc
began using it to sweeten 100 percent of their drinks, bringing
about a golden age for corn syrup.
But the switch began to stall over the past five years as
consumer sentiment turned against the product.
New York Mayor Michael Bloomberg's initiative to cap the
size of sweet drinks sold by restaurants, movie theaters, food
carts and other businesses has spread beyond the Big Apple.
Last month, the government of Mexico, the world's largest
soda market, announced its first tax on high-calorie foods,
aimed at curbing rising obesity rates and raising revenue.
U.S. corn syrup consumption has dropped 16 percent in the
past five years to 5.5 million tonnes at the same time that
sucrose has risen 0.7 percent to 5.1 million tonnes, according
to consumer research firm Euromonitor International.
Corn syrup's discount to sugar may be temporary, and prices
are expected to return to historical norms as corn prices
have dropped some 50 percent since July of last year in
anticipation of a record-large U.S. harvest this autumn.
The USDA estimates that about 500 million bushels of corn,
or 5 percent of the U.S. crop, is used to produce high-fructose
corn syrup, a level that has remained relatively steady in the
past decade. However exports in recent years have risen
threefold or more; in 2011 nearly one-fifth of all syrup was
exported, USDA data show.
But the circumstances stand to stall demand growth for corn
syrup and put sweetener users in a comfortable spot as this
year's negotiations with producers kick off.
U.S. cane refiners have plenty of spare capacity to meet any
fresh demand if food manufacturers do switch back to sucrose.
Between 10-15 percent of the country's 5.9 million tonnes of
cane refining capacity is idle, based on most recent annual data
and industry estimates.
The situation has left bottlers and other sweetener users
with the added ammunition of switching products during this
year's negotiation with corn millers.
NOT SO EASY
Even so, switching sweeteners can prove tricky.
Producers would have to use up their corn syrup stockpiles
as well as change recipes, edit product labels and retrofit
factories, analysts said.
Sugar prices would have to remain consistently low to
trigger a seismic shift in the use of the sweetener.
Then there is the matter of fickle consumer sentiment. When
ConAgra Foods Inc swapped sugar for high fructose corn
syrup in its Hunt's ketchup in 2010, customers complained about
the taste. The company now offers both varieties.
"It seemed like this was something consumers wanted, but
once we did it, demand just wasn't there," said Lanie Friedman,
Even so, the wrangling will likely roil price negotiations.
"Everyone needs to look at it. It may be used as a
negotiating tool, even if customers don't switch," said Michael
Crowder, president of food ingredient broker South East Sales in