14 Jul The New US-Mexico Sugar Trade Deal
On June 6th, the United States’ Secretary of Commerce and Mexico’s Secretary of Economy announced a new US-Mexico sugar trade deal. This agreement, in principle, would suspend countervailing duties against Mexican sugar imports into the United States. In the weeks that have followed, the finer details of this new US-Mexico sugar trade deal have been agreed on and finalized.
As anticipated, the details of the agreement had everything to do with the make up and price of the sugar that Mexico will export to the US and not the overall amount. Previously, the price floor for Mexican sugar was $22.5 per CWT bulk FOB for raw sugar and $26 per CWT bulk FOB for refined sugar. Those levels have been increased to $23 and $28, respectively. In the original deal, 53% of exports could be refined sugar and 47% could be raw. Under the new US-Mexico sugar trade deal , the split will be 30% refined and 70% raw. Lastly, and most importantly, the polarity (sucrose content) level that separates raw and refined sugar will be 99.2%. In the past deal, that level was 99.5%. This is a crucial change because Mexican “estandar” sugar is typically 99.4% pure or better. Obviously, this will limit the supply of estandar for use as a finished ingredient in the U.S. Plus, at a price of $28 bulk FOB, it will have a hard time competing with domestic refined sugar in much of the country. Another important stipulation is that all raw sugar shipped from Mexico will have to travel in bulk on an ocean going vessel, nearly guaranteeing that it will go to a U.S. cane refiner. Lastly, a win for Mexico in this deal is that they get right of first refusal on all import increases that the USDA can make after April 1.
I anticipate that the affects of this new US-Mexico sugar trade deal will only represent a minor departure from our current market for refined cane sugar. It will bring down the #16 domestic raw sugar market (roughly $27-28 prior to the deal) as it will now have to compete with a good amount of Mexican raw priced at $23 FOB. That said, this decrease will only be a cent or two. It will give U.S. cane refineries access to enough raw sugar to run at an efficient level. Plus, the new polarity requirements will ensure a molasses content that will aid in brown sugar production and molasses availability. In the end though, I do not see refined cane sugar prices going much lower than current levels. I would think that beet sugar pricing will increase by a few cents. This is due to the new lack of estandar that can be sold at raw sugar prices but will not be priced at $28 FOB Mexico.