WASHINGTON, Sept. 5, 2013- Sugar processors forfeited an estimated 85,000 tons of sugar, valued at $34.6 million, to USDA as a result of record U.S. crop production and strong Mexican imports, the U.S. Department of Agriculture confirmed today.
Sugar processors must forfeit their collateral crop to USDA after defaulting on outstanding loans that were due in August. USDA’s preliminary estimate is based on an ongoing reporting procedure, which measures the tons of sugar USDA acquires as borrowers repay their Commodity Credit Corporation (CCC) loans with sugar collateral in lieu of cash, a provision allowed under the Sugar Loan Program.
“A wave of unneeded, subsidized Mexican sugar has sent U.S. prices plummeting since 2010, and as a result, some sugar producers will be unable to repay government-backed operating loans with interest,” according to a statement from the American Sugar Alliance, which represents sugar processors, beet and cane farmers.
The record U.S. sugar beet crop, the record U.S. and Mexican sugarcane crops, and surplus world sugar production have resulted in domestic prices falling more than 30 percent from a year ago, well below the Sugar Program support level, USDA noted in its statement today.
According to USDA, the forfeitures represent less than one percent of the nine million tons of sugar expected to be produced in the U.S. in 2013. However, most CCC sugar loans mature at the end of September presenting a substantial risk that borrowers will repay some of these loans with collateral instead of cash.
In August, the agency implemented the Feedstock Flexibility Program for the first time in an effort to reduce the risk of forfeitures. Under the program outlined in the 2008 Farm Bill, USDA bought sugar from processors and sold it to a bioenergy producer at a loss of $2.7 million. The program’s implementation this year removed just over 7,000 tons of sugar from the market.
In addition to FFP, the agency purchased more than $50 million in sugar and utilized the Refined Sugar Re-export Program.
“Without those efforts, it is likely that today’s forfeiture of $35 million would have been higher,” according to ASA. “Another $300 million in sugar loans come due at the end of September, and if prices remain depressed, those loans are in danger of forfeiture as well.”
However, sugar users, including the Sweetener Users Association have pointed to the nation’s sugar policy as the root cause of an environment resulting in forfeitures.
“For the first four years under the 2008 farm bill, the result was a period of extraordinarily high domestic sugar prices, reaching record levels in 2010 and 2011,” testified Sweeter Users Association economist Thomas Earley before the U.S. International Trade Commission this year. “Not surprisingly, a couple of years of record prices stimulated production in both the U.S. and Mexico.”
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