Sugar Price Survey

8/6/2019 Sugar Price Survey

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AMERICAS SUGAR PRODUCERSMeeting Americas Needs

Sugar Price Survey

August 2009


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Sugar Price Survey August 2009

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Introduction

When discussing the cost of sugar in America, there are three prices to consider: 1) the retailprice paid by grocery shoppers, 2) the wholesale price paid by large food manufacturers, and 3)the raw sugar price that sugarcane producers receive for milled sugar that needs further refining.

The past year has seen consumers paying more for a bag of refined sugara reflection ofgrocery stores increasing their markup and profit margins. Shoppers have also been asked tofork over more for sweetened products such as cookies, cake, and candy, but this has not been aresult of sugar pricing. Like the grocery stores, large food manufacturers have increased productprices in hopes of boosting profits.

On the other hand, wholesale sugar prices have fallen since last summer, and raw sugar prices inthe first half of 2009 were well below 2008 levels, largely because of a dramatic increase in rawsugar imports from Mexico.

The end result has been many sugar farmers struggling to remain profitable while large foodmanufacturers are reporting sharp revenue increases despite the countrys economic recessionatestament to sweetened products' affordability and popularity, and the cheapness of foodcompanies raw ingredients.

Ironically, industrial sweetener users want to further the divide between their profitability andthat of their sugar suppliers. The U.S. Department of Agriculture (USDA) has come under heavypressure from food manufacturer lobbyists this past year to increase import levels, a move thatwould send sugar prices even lower and would likely cost taxpayers millions of dollars inforfeitures.

To help lawmakers and Administration officials sort fact from fiction when it comes to sugar prices, the American Sugar Alliance has updated its annual price survey of sugar and sugar-containing products.


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Retail, Wholesale, and Raw Sugar Prices

Ask most people how much sugar costs and few will have any idea. Thats because sugar is aninexpensive staple that can be bought in bulk at a fraction of the cost of competing sweeteners.Some people would even observe that its so cheap that restaurants give away sugar for free.

And its a better bargain in America than just about anywhere. A June study by LMCInternational, a renowned commodities research firm from Oxford, England, found thatAmericans spend less of their incomes on sugarjust 0.08%than any other country in theworld, even though sugar is found in just about everything we eat.

If you can find a person familiar with sugar prices, chances are they only know about the retailprice they pay for a bag of sugar in the grocery store. But most legislative and business battlelines are drawn over wholesale and raw pricesthe price paid by food manufacturers and theprice received by sugarcane producers respectively.

Since the American Sugar Alliances last sugar price survey in August 2008, the market haswitnessed unprecedented movement. Retail prices have steadily climbed, while wholesale andraw prices have actually decreased.

Retail Prices:

From 1990 to 2005, retail sugar prices were remarkably stagnant, averaging approximately 42cents per pound. But 2006 began a price run-up in prices that has steadily increased, with asharp spike occurring since July 2008retail prices last July were 52.5 cents per pound andjumped to a high of 57 cents this March.

Amazingly these costs have climbed despite ample sugar supplies. That can be seen in the chartbelow, which shows the increasing spread between the retail prices grocery stores charge and thewholesale prices that the grocery stores pay to purchase the sugar.


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In other words, the only thing thats changed this year has been the profit margin for grocerystores. To understand why this price gap widened, you need to look past sugar to the other itemsin your shopping cart. Since 2006, food prices have climbed across the board, with food

manufacturers and grocery stores steadily increasing prices in hopes of offsetting a higher cost ofdoing businessfrom more expensive ingredient costs (except sugar) to higher fuel andtransportation expenses.

In fact, food and beverage costs increased 7.2% from 2006 to 2008, according to the Bureau ofLabor Statistics.

Unfortunately for sugar producerswho had to deal with the same higher input costs that plagued manufacturerstheir prices didnt see sharp inclines like other commodities to helprecoup losses.

Since last year, prices for corn, soybeans and wheat have come back to earth, being sliced in halfin many cases. Corn was recently trading at $3.00 a bushel compared to a high of $7.60 lastJune, while wheat prices have dropped from about $12 a bushel to about $6 a bushel over thepast year.

Fuel is also dramatically cheaper this year, yet food prices have remained high. Why? Its aphenomenon that economists call sticky prices.

The Grocery Manufacturers Association, a trade association of large food companies, profiled areport on their website in December 2007 that explained the theory this way, The long period oflow food price inflation rates prior to 2007 has passed."


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Put another way, what goes up doesn't come down.

This market forecast means grocery shoppers will likely see higher retail sugar prices for theforeseeable future so grocers can boost profits even though wholesale and raw prices are on a

different trajectory.

Wholesale Prices:

In recent weeks, food manufacturers have intensified a yearlong lobbying campaign targeting theUSDA. Their mission: to increase sugar imports in order to lower wholesale sugar prices.

One would assume, therefore, that wholesale sugar prices have been going up at a rate similar toretail sugar prices. Wrong. The wholesale sugar prices paid by food companies have beenrelatively stable and have actually decreased slightly from this time last year.

When the 2008 Sugar Price Survey was penned last Augustaround the time food companycalls for higher imports beganwholesale prices were 38.4 cents per pound. Prices for the firsthalf of 2009 averaged 34.9 cents, a 9% reduction.

Admittedly, current prices are slightly higher than the 32.5-cent average for 2008, but sugarprices around the world have increased in 2009 and the current cost to U.S. food manufacturersis still cheaper than it was when Jimmy Carter sat in the Oval Office.

Sugar cost 38.3 cents per pound in 1980, and when inflation is factored, sugar is 59% cheapertoday than it was almost three decades ago.

Food manufacturers in other developed countries arent so lucky. According to a study of 2008sugar prices conducted by LMC International, candy companies in the rest of the developedworld are paying 9% more for sugar.

Sugar Prices Around the Developed World in 2008

U.S. Prices Low by Comparison

Country

Wholesale Prices

(US$/LB)

Retail Prices

(US$/LB)

EU 0.39 0.63

Developed Country Avg. 0.38 0.59

USA 0.35 0.53

Source: LMC International Ltd, Oxford, England, June 2009: Retail and Wholesale Sugar Prices Around the World in 2008


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Raw Prices:

The biggest anomaly over the past year has been the raw sugar pricethe price received bysugarcane producers for milled sugar that still must be refined before it is ready for consumption.

This price is essential to cane farmers and is a key indicator of sugar supplies because the vastmajority of imports are shipped in a raw form and then refined at an American refinery toovercome quality and delivery problems that are rampant in other countries.

Raw prices averaged 23.2 cents per pound when the 2008 Sugar Price Survey was written. In themonths that followed, raw prices dropped like a rock, plunging as low as 19.8 cents in Februaryand March of 2009.

This downward spiral is a direct result of two factors: 1) a 300,000-ton import increaseannounced by the USDA last August, and 2) an unprecedented amount of Mexican sugarflooding the American market in late 2008 and early 2009.

Unfortunately for sugar farmersespecially those in Louisiana and Texas who do not refinetheir own sugar and are solely dependent on the raw marketraw prices hovered at or belowwhats known as the forfeiture level for most of the year. This is the level at which it makesmore economic sense to forfeit your crop to the government than to repay the government loanswith interest.

Such forfeitures almost never happen because the federal Farm Bill mandates that the USDAshould operate sugar policy in a way that prevents forfeitures and the associated taxpayer costs.However, forfeiture has been a real danger in 2009 because of low raw prices and it will remaina danger for the next two months as $62 million in operating loans from Louisiana come due.


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Raw prices have started an upward ascent in recent months but remain fragile. In fact, a rumoron July 23 of an imminent import increase announcement by the USDA sent raw prices tumblingby 23 points.

Sugar producers dependent on the raw price are rightfully worried that a USDA import

announcement would send prices lower and back near forfeiture levels. Similar announcementsin July 2006 and August 2008 sent prices lower by 16% and 17% respectively.

With these loans maturing, clearly now is not the time to cave to demands for additionalimports, Wallace Ellender, a Louisiana sugar producer, recently said. And he wants the USDAto know that higher input costs mean producers can still find themselves below their breakevenlevels even when prices are above the traditional forfeiture range.

Ellenders observations corroborated a study conducted by Louisiana State University (LSU)released in early June. The data revealed cane farmers in the state continue to lose on average$70 per acre after paying land rents and production costs. Farmers would need to receive 24

cents per pound of raw sugar in order to make ends meet, LSU estimated. June raw sugar pricesaveraged just 22.5 cents per pound.

The scenario is even worse for producers who are suffering the ill effects of recent hurricanes.The lower yields brought about by the storms can push the breakeven point as high as 28 centsfor some Louisiana growers, LSU found.

The chart above illustrates just how low raw prices have been for sugar farmers dealing witheven normal rates of inflation.


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Of course, its not just Louisiana farmers who are coping with higher input costs. Rising fuel,labor, and chemical costs have deflated profits across the sugar businessfrom beet growers andprocessors to sugarcane refiners. All told, 35 sugar mills and refineries have shut down since1996 because of financial strain.

The following chart shows some of the rising input costs that created this atmosphere oftightening profit margins. Note the loan rate received by sugar growers has remained unchangedsince 1985 and will only increase by one-quarter of one cent per pound next year.

Judging from recent profit reports, things have been a bit rosier in the sweetener-using sector.High candy profits in the face of low raw sugar prices even led one prominent Louisiana bankerto pen an article in May on the subject.

Seeing neighbors go under is never easy, but its even more difficult when youre readingheadlines about good times on the other side of the equation, wrote Dean Martin, assistant vicepresident of First South Farm Credit.


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Sugar Users See Good Times

Recession or not, people will still celebrate Christmas, Halloween, Easter, and Valentines Day,which is why candy companies make money in good times and in bad, says the NationalConfectioners Association (NCA). In fact, NCA unveiled at its annual All Candy Expo, held in

May, that the industry actually posted a 3.7% sales gain in the past year despite the worsteconomy since the Great Depression.

This comes just one year after NCA proudly proclaimed in an industry report, "Not only isconfectionery a large product category at $28.2 billion in retail sales, it is a high profit category.Margins average more than 35% for the category.

NCAs 2008 depiction of a high profit industry appears to be holding true again in 2009.

Hershey's chief executive had this to say on a January 27 conference call with investors: "Thefinancial market and credit crisis has not had a material effect on our business operations or

liquidity, to date."

In fact, the Hershey Company proudly told investors that its fourth quarter net income was up astaggering 51% from a year ago. The good news didnt end there. Months later the companyposted a 20% increase in profit during the first quarter of 2009.

They werent alone in their exciting news this year. "DeMet's Candy Company is looking to hire100 people for its new plant," a news station in Big Flats, NY reported on January 28.

New hiresplant expansionincreased income. These are not the signs of a struggling industry,no matter what food manufacturer lobbyists try to tell lawmakers and USDA officials when

shopping for policies that would further depress sugar prices.

And this good news isn't isolated to a few candy companies. Other large sugar buyers are gettinginto the act.

A new Sconza Candy Co. plant officially opened in Oakdale, CA in November 2008,employing 100 people immediately and looking to hire more.

On the heels of a 2005 expansion to the tune of $200 million, Dreyer's Grand Ice Creamadded a new production line to their Laurel, MD factory in February and promised twomore by year's end.

Tierra Nueva, a cocoa and chocolate-product factory, opened a new facility in Miami inMarch, which brought with it an estimated 160 new jobs.

J.M. Smucker Co. announced in March it will open a 557,000 square foot distributionfacility in Atlanta, GA.

General Mills released plans a few months ago to expand its Albuquerque, NM facilityand create 60 new jobs.

Sara Lee Corporation is celebrating a huge expansion of its facility in Rochelle, IL. The132,000 square foot expansion project will be Sara Lee's largest mixing facility andshould be completed by December.


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"In a span of five years, Nestle will have invested $529 million in this facility," NestleUSA Chairman & CEO Brad Alford recently crowed about a new factory in Anderson,IN. "When it's finished in 2011, the Anderson facility will have created more than 500local jobs in a tough economy. This is our fourth investment in Indiana in the past twoyearstwice in Anderson, once in Greenwood and once in Fort Wayne."

Kelloggs first quarter net earnings were $321 million, a 2% increase from last year's$315 million.

Kraft witnessed a 10% rise in first quarter revenues. General Mills reported sales increases of 8% and an earning per share increase of 2% in

Fiscal Year 2009. Profits were apparently so good at Mars, the company began giving its product away,

with, according to the company, the creation of the Mars Real Chocolate Relief Act, anationwide effort to bring sweet smiles to millions of Americans via free, full-sizedsamples of Mars real chocolate, product discounts and coupons along with theproclamation ofFree Chocolate Fridays

Dean Martin, the Louisiana banker infuriated by the double standard in the sugar market rightnow summed up the situation this way: I dont fault Hersheys or any other food manufacturerfor turning a profitafter all thats why people go into business. But driving suppliers into theground to pad profits is bad business.


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U.S. Sugar Market Stable

Unbeknownst to most people, a furious battle is going on behind the scenes over the future of thesugar market in 2009 and 2010. Large food manufacturers hungry for bigger profits insist thesugar market is tight and have been lobbying for 500,000 to 1 million tons of additional imports

to flood the U.S. (an amount equal to 5-10% of the entire U.S. market).

Meanwhile, sugar producers point to surplus stocks of sugar sitting in America and raw prices toprove there is no need for additional imports and that supplies are stable. Their arguments weresummed up in a July 10 letter to the USDA that stated:

U.S. cane refiners continue to have more than adequate supplies of raw sugar. Most areoperating at less than full capacity because the demand for refined sugar is not great.

Beet processors still have refined sugar to sell. No food manufacturers are having anytrouble locating refined sugar supplies. Raw and refined sugar prices remain relatively

stable.

Early beet harvesting will begin in just two months and, as harvests get underwaythroughout beet and cane areas, the market will move into its heaviest oversupply period.

Resumption of full operations at Imperials Savannah cane sugar refinery will speedrefined sugar production and delivery. Stocks will build through the spring. During

October-March, 83% of U.S. sugar production occurs but only 49% of consumption.During this period, too, the U.S. market is open to all the tariff-rate quota (TRQ) supplies

from WTO and CAFTA quota-holder countries. And, most importantly, the market isopen to unlimited supplies from Mexico.

During this past October-March, Mexico shipped over 600,000 metric tons of sugar to

the United States. That is more imports from Mexico in the first half of the year thanUSDA had been forecasting, as late as January, for the entire fiscal year. USDA now

forecasts imports from Mexico to total 1.18 million tons for all of 2008/09more sugarthan we are required to import from 40 countries under our WTO TRQ commitments.

USDAs projection of possible tight supplies in 2009/10 assumes imports from Mexico of

a mere 150,000 tons. Higher imports from Mexico next year would further ease anysupply concerns.

With chronic oversupply during the first half of the year, any tightness next year wouldnot emerge until the summer. USDA would have adequate time to prevent any possible

tightness through an import-quota increase, if necessary, on or after April 1.

To reiterate our message of last May: We remain committed to continued opencommunication regarding any potential shortages in the market. Meanwhile, we

commend your caution with regard to domestic sugar supplies and we urge you to remaincautious.


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Crying Wolf:

The underlying message that sugar producers have sent the USDA is the need to remain prudentwhen dealing with imports and considering tariff-rate quota increases. After all, they say, this isnot the first time profit-seeking candy companies have made false claims of sugar shortages.

After the USDA increased imports last August, food manufacturers said their actions didnt gofar enough. The Sweetener Users Association asked for 1 million tons of additional sugar lastSeptember, pointing to USDA projections of supplies more than a year down the road as theirrationale.

But market conditions changed along with USDA projections. A 2009 sugar market onceestimated to only have a 4.6% surplus sugar ratio quickly ballooned to 12% as stocks increased.Only, the sugar users never ceased their lobbying push, routinely pressuring the USDA for moreimports.

Had the USDA caved to these demands last fall, the countrys sugar surplus rate would havesurged to an eye-popping 22% of consumption, a level that would have led to producer lossesand millions in taxpayer cost because of widespread loan forfeitures.

Jack Roney, an economist with the American Sugar Alliance, points out, The sugar users werewrong last year and theyre wrong now. He says imports from Mexico are the wildcardsweetener users arent taking into account, which is why the USDA should take a wait-and-seeapproach.

Mexican Wildcard:

Each month, the USDA is asked to forecast sugar supply and demand more than a year into thefuture. Its a difficult job that became exponentially harder on January 1, 2008. Thats when aNAFTA provision kicked in that allowed Mexico to send the United States as much duty-freesugar as it wants.

And under NAFTA, theres nothing to prevent Mexico from turning a handsome profit bysending the sugar it grows to America and then importing cheaper, subsidized sugar from othercountries to meet its own domestic needs.

This NAFTA loophole has caused impossible-to-predict fluctuations in USDA sugar supplyestimates over the past year.

For example, when Department officials first warned of a tight sugar market last year, theinformation they had received indicated that Mexico would only send America 500,000 metrictons of sugar. Actual shipments for this crop year are coming in more than double that amountcloser to 1.18 million metric tons.

Its no wonder then that raw sugar prices have remained low despite USDAs early predictionsof a tightened sugar market in Sept. 30, 2010nearly 14 months from now.


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The governments May World Agricultural Supply and Demand Estimates (WASDE) showed asurplus ratio of 2.7% for the 2010 crop yearan estimate that if not for the Mexican wildcardwould have normally sent market traders into a frenzy, and sent sugar prices higher.

But prices didnt jump, and the USDA has started revising its estimates upward as newinformation becomes available. The July WASDE has raised surplus estimates to 3.4%, anumber that most market observers expect to continue climbing drastically as next years marketrealities continue to come into focus.

For example, theres such little demand for sugar in the market right now that Louisianaproducers have taken out supplemental loans in order to carry part of their crop over to the nextcrop year, which begins in October. And, right now, the USDA is only projecting 150,000metric tons of sugar from Mexico in 2010an unlikely 87% drop from this crop year.

Given this kind of uncertainty, Roney says he does not envy the position that the USDA is in.Especially when the lobbyists from multinational food companies release misleading pressstatements designed to influence USDA decisions. For example, the Sweetener UsersAssociations July 21 press release that states large import increases will benefit consumers,reduce taxpayer costs, and are necessary with hurricane season looming.

Plummeting sugar prices could actually increase taxpayer costs, Roney explains, also pointingout that food manufacturers never pass these lower costs to consumers and that in the unfortunateevent of a hurricane, the Farm Bill includes a provision to allow the USDA to quickly increaseimports to make up any shortfall.


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Consumers Wouldnt See Savings from Even Lower Sugar Prices

Such outlandish claims by the Sweetener Users Association are not surprising since sugar policyopponents have been arguing for decades that grocery shoppers would see big savings on candy,cake, cookies, and other sweet treats if food manufacturers paid less for sugar.

Considering companies pay more to package their products than they do on the sugar inside,claims of significant consumer savings continue to defy logic. First of all, history has shown thatfood manufacturers would pocket any sugar price savings instead of passing it along toconsumers.

Secondly, simple math displays that if food manufacturers did pass savings along to consumers,those savings would be too minute to even make a difference.

A Pepsi spokesperson admitted as much during an interview three years agowith aNew York Times reporter working on a story about high fructose cornsyrup. When asked whether ingredient costs dictated sweetener choices, thespokesperson responded, The cost of the sweetener in the product is

extremely minimal to the point of not even mattering.

While his admission of indifference made many anti-sugar lobbyists cringe,this statement has held true to form as Pepsi ventured into a cadre of newproducts.

Visit your local grocery store today and you can find Pepsi made with sugar, corn syrup,aspartame, and Splenda. And chances are good you wont find any difference in the productscost.

The cost of

the sweetener

in the product

is extremely

minimal to the

point of noteven

mattering.Dave DeCecco

Pepsi Spokesperson


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Take the Safeway grocery store located just blocks from the American Sugar Alliances office,for example. Pepsi Throwback, the brand sweetened with sugar, costs $5.99 for a 12 pack ofcans. Ditto for regular Pepsi (corn syrup), Diet Pepsi (aspartame), Pepsi One (Splenda) andPepsi Max (aspartame and ginseng).

And the phenomenon is not isolated to Pepsi. Look at the list of sugar and sugar-free products inthe table below.

Sugar-Containing Vs. Sugar-Free Product Prices

Item Name Manufacturer Price

Safeway Vanilla Ice Cream Safeway Inc. $5.99

Safeway Sugar-Free Vanilla

Ice Cream Safeway Inc. $5.99

Edys Chocolate Ice Cream Dryers $6.49

Edys Sugar-Free ChocolateIce Cream Dryers $6.49

Jolly Ranchers Hersheys $2.49

Jolly Ranchers Sugar-Free Hersheys $2.49

It is clear that sugar prices have little if any bearing on pricing decisions for sweetened foods.But even if sugar prices were a major factor in a products cost, the chart below shows that pricefluctuations would barely register at the grocery store checkout line.

Wholesale Sugar Price Increases Have Little, If Any, Effect on Retail SweetenedProduct Prices

Source: Safeway Store, Arlington, VA, July 2009

1 Assumes wholesale refined sugar price of 34 cents per pound, the first half of 2009 average reported by USDA. Sugar content computed fromnutrition label.

Item Name Manufacturer

Item

Price

in

2008

Item

Price

In

2009

Cost of

Sugar in

Item1

Sugar

Share of

Product

Price

Hershey w/almonds Hersheys $0.90 $0.99 $0.01 1.44%

Almond Joy Hersheys $0.90 $0.99 $0.02 1.67%

Jolly Ranchers Hersheys $2.39 $2.49 $0.09 3.64%

Ben & Jerrys Ice Cream Ben & Jerrys $3.39 $4.49 $0.06 1.27%

Good & Plenty Hersheys $1.59 $1.69 $0.07 4.19%

M&Ms M&M Mars $0.90 $0.99 $0.02 2.35%

Mike and Ike Just Born $1.59 $1.69 $0.12 7.14%

Aunt Jemima Corn Bread Quaker $1.66 $1.66 $0.15 9.03%

Source: Safeway Store, Arlington, VA, July 2009


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Put another way, a 99-cent candy bar with a pennys worth of sugar would still cost 98 centseven if candy companies got the sugar for free. And that assumes that industrial sugar userswould pass every penny of savings along to consumers.

This seems highly unlikely considering that almost every product in the chart above costs morethan it did the year before. It looks like food manufacturers care more about profits than aboutconsumer savings. Maybe thats the motive behind their current lobbying efforts to bring inunneeded sugar from foreign countries.

American Sugar Alliance2111 Wilson Boulevard, Suite 600

Arlington, VA 22201Tel: 703-351-5055 Fax: 703-351-6698

www.sugaralliance.org

Documents

Sugar Price Survey