December 5, 2013 / 7:31 PM / 4 years ago

More U.S. sugar defaults ahead unless global prices rally -Jenkins

NEW YORK, Dec 5 (Reuters) - Global sugar prices must climb some 11 percent to deter exporters from shipping to the United States and leaving the U.S. market again overwhelmed with huge supplies in the 2013/14 crop year, according to the largest U.S. raw sugar broker.

World prices need to rise above 18.50 cents a lb to prevent another year of ballooning inventories and more sugar defaults from U.S. growers and processors, said Frank Jenkins, president of Jenkins Sugar Group in Wilton, Connecticut.

Last year, for the first time in a decade, sugar processors defaulted on government-backed loans which used sugar as collateral. As a result, they relinquished large tonnages of unwanted sweetener to the U.S. Department of Agriculture.

The default came as Mexican and U.S. production climbed, supplies ballooned, and prices tumbled.

Jenkins on Thursday projected a 21.9 percent sugar stocks-to-use ratio in the 2013/14 crop year that began on Oct. 1. That would be well above a U.S. government forecast of 19.9 percent, last year’s estimated 18.2 percent, and the 14 percent considered healthy for the market.

U.S. government sugar programs are designed to support U.S. growers by buoying domestic prices. One unintended consequence of this policy is that it makes the U.S. sugar market more attractive to foreign suppliers if prices in the coveted U.S. market climb while global prices languish.

The USDA’s re-export credit swap program used in 12/13 to erode supplies was “counter-productive to the extent it pressures world prices,” said Jenkins.

He said he expects U.S. exports to Mexico and the rest of the world to climb due to the program.

Further, Jenkins pegged Mexican output this year at roughly 6.7 million tonnes, down slightly from last year’s high levels and in line with recent Mexican forecasts.

Even so, that is historically high and above the current USDA projection of 6.5 million tonnes.

Mexico will export some 788,200 tonnes of sugar outside of the NAFTA market, the country’s traditional outlet for sugar, according to Jenkins.

Another year of excess in North America will burden a world market already awash in supplies from Brazil, India, and Thailand.

Front-month raw sugar prices on ICE Futures U.S. traded at about 16.70 cents a lb on Thursday, trending back toward July’s three-year low below 15.93 cents.

Meanwhile, spot U.S. domestic raw sugar contract on ICE Futures U.S. were about 20 cents a lb.

While the U.S. premium has tumbled precipitously since 2012, it could still lure sugar to U.S. shores. (Reporting by Chris Prentice; Editing by David Gregorio)

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