* Processors default on 382,000 tons of sugar this year
* Highest sugar subsidy cost since $465 mln in 2000
* Congress unlikely to change sugar program, however
* Analysts expect more USDA effort to pare huge surplus
By Charles Abbott
WASHINGTON, Oct 24 The United States faces its
highest sugar subsidy cost since 2000, an estimated $280
million, following a new wave of defaults by processors on
Nearly 382,000 tons were forfeited in the final two months
of fiscal 2013, despite repeated Agriculture Department efforts
to whittle down a mammoth surplus and bolster futures prices.
The surplus was projected to persist for months to come.
The USDA said on Thursday that 296,500 tons were forfeited
at the end of September, broadly in line with trade
expectations, on top of 85,375 tons forfeited at the end of
Due to low prices, processors ceded the sugar, which had
been pledged as collateral, to the government rather than repay
price support loans.
The forfeitures amounted to roughly 4 percent of the 9
million tons of sugar produced during 2013. The USDA said sugar
prices fell more than 30 percent in the past year because of
huge crops worldwide. U.S. growers also blame large imports from
"We had expectations for bad things happening and they were
fulfilled. It just indicates that we have a glut and that is
still a problem for the U.S. sugar market," said Sterling Smith,
a futures specialist with Citigroup in Chicago. "This puts a lot
of sugar in the hands of the USDA."
It was unclear if the USDA announcement of the forfeitures
would bolster U.S. sugar prices, which are up over 16 percent
since the end of June. The front-month No. 16 domestic raw sugar
contract on ICE Futures U.S. closed up 0.2 percent at
22.12 cents a pound on Thursday.
Analysts estimated the sugar subsidy program would cost $280
million for 2013, the highest price tag since $465 million in
2000, during another period of surpluses.
The USDA was likely to move aggressively to dispose of the
surplus sugar, said two analysts who spoke on condition of
anonymity. They said the government could sell sugar to ethanol
makers and barter it for re-export credits as a way to reduce
the sugar supply.
Although costs spiked this year at the same time Congress
was writing a new farm bill, lawmakers are not expected to
change the program, which is supposed to run at no cost to
taxpayers and usually does.
The sugar program assures a minimum price for sugar to U.S.
growers. The USDA limits sugar imports and has authority to
regulate domestic marketing of sugar in order to provide the
price guarantee to growers and limit the cost to taxpayers.
In its efforts to reduce the surplus, the USDA for the first
time used the Feedstock Flexibility Program to sell surplus
sugar at a loss to ethanol makers. The sugar-for-ethanol program
removed more than 143,000 tons from the market.
The sugar supply was reduced by an additional 608,000 tons,
the USDA said, when it traded sugar to retire credits that allow
refiners to bring sugar into the country for processing and
American Crystal Sugar Co said it defaulted on
$46.6 million in sugar loans at the end of September, about half
of the quantity it had under USDA loans.
"The decision to forfeit is never an easy one. It's always a
reflection of the market at the time, and the market is very
poor. The decision was logical from a business standpoint," said
Kevin Price, director of government affairs for American Crystal
Price said it was "hard to say" whether the forfeitures
would be taken as a bullish sign and boost futures prices.