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In aftermath of Katrina: USDA changes sugar program details

Anticipating widespread destruction in Louisiana's sugarcane fields in the wake of Hurricane Katrina, USDA announced further changes to the fiscal 2005 sugar program that it modified only weeks ago.

Agriculture Department spokesmen said USDA is increasing the fiscal 2005 Overall Allotment Quantity (OAQ), which is the quantity of domestic sugar that may enter the market. It also announced early entry of the fiscal 2006 refined sugar tariff-rate quota, beginning Sept. 8, 2005.

The early entry of the fiscal 2006 refined sugar tariff-rate quota does not include specialty sugar, for which the previously announced dates of opening remain unchanged. This announcement follows the Aug. 19 sugar program actions intended to increase domestic supply.

Katrina struck land east of the primary sugarcane area of Louisiana, but the Category 3 hurricane was still expected to cause widespread damage to sugarcane fields, which were about two months from harvest.

The hurricane was the latest in a series of events that has severely tightened the sugar market and threatened the domestic production of sugar-containing foods. The sugar market has progressively tightened across fiscal 2005 due to unexpected strong demand, cane sugar production reduced by previous hurricanes and expected weather-reduced September 2005 beet sugar production in the upper Midwest.

The actions taken Aug. 30 are intended to boost refined sugar quantities immediately available to ameliorate already-tight domestic market conditions, exacerbated by the forced closure of two major sugar refineries by the hurricane. The refineries in the New Orleans area produce about 5,500 tons of sugar daily.

USDA is committed to provide an adequate supply of sugar to meet domestic needs, within the bounds of the current sugar program, department officials said.

An increase in the OAQ of 225,000 short tons, raw value (STRV) is expected to result in immediate availability of some beet sugar “blocked stocks.” Fifty-four percent of the OAQ increase is assigned to the beet sector, as required by statute.

It is also recognized that not all entities receiving allocations will be able to supply sugar this month because of the location of current inventories and the transportation logistics of moving refined sugar. As a result, USDA surveyed all entities that have been assigned a marketing allotment to determine the amount of refined sugar that actually can be made available to the market in the remainder of fiscal 2005. Accounting for this “slippage,” the 122,288 STRV allocation is estimated to result in some 71,000 STRV actually entering the market.

The beet sugar allotment is assigned to sugar beet processors. As in the Aug. 19 announcement, the Commodity Credit Corporation (CCC) reassigned allotment from companies that were not expected to fulfill their allocation to companies that have a greater capacity to do so.

No cane sugar blocked stocks exist, and that sector's portion (46 percent) of the allocation must be reassigned to the CCC. Since CCC also has no sugar, the allotment is reassigned to imports, notably to the refined sugar TRQ allocation and to over-quota (tier II) sugar entering from Mexico.

The Aug. 12, 2005, World Agricultural Estimates of Supply and Demand report, estimated fiscal 2005 Mexican tier II imports at 110,000 STRV. Assigning this shortfall to raw sugar exporters would not help alleviate the acute shortage in refined sugar. Refineries already are operating at near capacity and few supplying countries are able to land raw sugar before Sept. 30, the end of the marketing year, even if refinery capacity were available.

Allowing early entry for the refined sugar fiscal 2006 minimum TRQ is expected to result in an additional 22,000 STRV available at once to the market. Most is already in the United States in bonded warehouse facilities or nearby in Canada.

The release of the blocked beet stocks plus early entry of refined sugar thus could result in more than 93,000 tons more sugar in the market in September. This amount is adjudged to be well in excess of the reduced supply resulting from the production disruption caused by Hurricane Katrina.

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