(Adds background, analysts comment)
By Charles Abbott
WASHINGTON, Sept 12 For the fourth time this year, the U.S. government intervened in the sugar market on Thursday to try to drive up prices depressed by large global supplies and avoid the highest sugar subsidy costs in 13 years.
The Agriculture Department offered to swap up to 85,375 short tons of government-owned sugar for credits held by refiners as a way to reduce a mammoth surplus that could force processors to default on government-backed loans.
The USDA said it would swap the sugar for re-export credits. The credits give refiners the right to import sugar for processing in the United States. Since June, two such swaps have reduced the sugar supply by a 3-to-1 ratio for each ton that was offered.
Low market prices raise the possibility of large-scale forfeitures of sugar used as collateral for government loans, and the highest sugar subsidy costs since the $465 million in fiscal 2000.
By law, the USDA is obliged to assure growers of a minimum price for sugar while operating the sugar program at no net cost to taxpayers. The USDA limits imports and marketing of U.S.-grown sugar to achieve the twin goals. Foodmakers often complain that government keeps the sugar supply too small, driving up the price of sugar to them.
The USDA is faced with the potential forfeiture of 601,400 tons of sugar at the end of September because market prices have been lower than the price guaranteed by the government.
If all the sugar is forfeited at the end of September, when loans are due, it would cost the USDA $276.3 million in defaulted loans.
Refiners forfeited 85,375 tons of sugar to the government when price support loans came due on Aug. 31 because the loan rate of 20.9 cents per lb was higher than the market price of sugar. The August forfeitures cost $34.6 million.
While the earlier swaps reduced the sugar supply by 354,712 tons, the new offer may not be as successful, said an analyst who spoke on condition of anonymity. He said processors had indicated few credits remained available under the refined sugar re-export program.
The USDA said the swap "is preferable at this time to other available supply management options because it minimizes the cost of the sugar program."
"More needs to be done," said Jack Roney of the American Sugar Alliance, a trade group for sugar growers. If USDA does not rein in the sugar surplus, this year's over-supply will re-appear in the new fiscal year and keep prices low and the threat of loan default high. Roney said the sugar surplus was at record levels.
"I am optimistic USDA will take further action to reduce forfeitures," said Roney.
An offer by the USDA to sell surplus sugar to ethanol makers resulted in a comparatively minor sale in late August - just 7,118 tons out of 90,000 tons that were offered.
The U.S. 2012/13 sugar surplus was forecast on Thursday to be 2.2 million tons on the Sept. 30 end of the marketing year, equal to 18.4 percent of usage. USDA aims for a 15 percent stocks-to-use ratio.
The outlook for 2013/14 is expected to be even worse. USDA now forecasts a 19.5-percent stocks-to-use ratio for the new marketing year, up from 16.9 percent estimated a month ago, as domestic production rises and imports also expand.
(Additional reporting by Chris Prentice in New York; Editing by and Marguerita Choy and Carol Bishopric)