USDA MODIFIES SUGAR PROGRAM TO ADDRESS MARKET DISRUPTION CAUSED BY HURRICANE KATRINA
WASHINGTON, Aug. 30, 2005 - In response to the sugar market turmoil created by Hurricane Katrina, the U.S. Department of Agriculture today further modified the FY 2005 sugar program.
USDA is increasing the FY 2005 Overall Allotment Quantity (OAQ), which is the quantity of domestic sugar that may enter the market and announced early entry of the FY 2006 refined sugar tariff-rate quota, beginning September 8, 2005. The early entry of the FY 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 August 19 sugar program actions intended to increase domestic supply.
The catastrophic 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 FY 2005 due to unexpected strong demand, reduced cane sugar production caused by previous hurricanes and expected weather-reduced September 2005 beet sugar production in the upper Midwest.
The actions taken today 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.
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 FY 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 according to the attached table. As in the August 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%) 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 August 12, 2005, World Agricultural Estimates of Supply and Demand report, estimated FY 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 September 30, the end of the marketing year, even if refinery capacity were available.
REFINED SUGAR EARLY ENTRY
Allowing early entry for the refined sugar FY 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.
The Department announced on August 12 details of the sugar program for FY 2006 beginning October 1. Sugar and sweetener market conditions are closely monitored continuously and adjustments made when warranted.
FY 2005 OVERALL BEET-CANE ALLOTMENTS AND ALLOCATIONS
FY 2005 Allotments - Allocations as of 8-19-05
Change in Allotments - Allocations Due to Change in FY 2005 OAQ
Change in Allotments - Allocations Due to Reassignment