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US and Mexican Sugar Complex

US and Mexican Sugar Complex. A return to managed (and manageable) trade?. August 4, 2014 Stowe, Vermont. Agenda:. Recent past Defaults, Dumping, Devastation Current situation and evolution to “New NAFTA” Mexico and US S&D Assumptions Outlook Conclusions. Our story thus far….

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US and Mexican Sugar Complex

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  1. US and Mexican Sugar Complex A return to managed (and manageable) trade? August 4, 2014 Stowe, Vermont

  2. Agenda: • Recent past • Defaults, Dumping, Devastation • Current situation and evolution to “New NAFTA” • Mexico and US S&D • Assumptions • Outlook • Conclusions

  3. Our story thus far… • In past two years, USDA lost its ability to manage the US sugar program • Inability to limit Mexican shipments was the cause • ASC has sued at the ITC, asserting dumping and illegal subsidization • Outcome of case, likely in early 2015, will: • Return US to managed (and manageable) sugar trade, or • If case is dismissed, revert to recent form and imperil US Sugar Program

  4. The Inmates Running the Asylum

  5. Mexican exports to the US:October 2010-May 2014 Source: USDA/FAS & Census

  6. Mexico’s seat at the US table:Imports - 1,000 STRV Source: USDA/FAS

  7. Mexico’s seat at the US table:as a % of total imports Source: USDA/FAS

  8. US Sugar production:1,000 strv US sugar production down 756,000 tons in two seasons Source: USDA

  9. US & Mexican Sugar production:1,000 strv US & Mexican production down 1.731 million tons Source: USDA

  10. US & Mexican Balance:Production – Consumption 1,000 strv 172,000 surplus 1.830 million deficit 3.055 million deficit Source: USDA

  11. US base imports: • FY’14 Imports • Mandatory access: • TRQ • Raw 1.231 million strv • Refined 134,482 strv (not all mandatory) • FTA 203,046 strv • Total 1.568 million strv • Discretionary • Re-export 210,000 strv Total: 1.779 million strv

  12. How To Get Program Back Under Control?:

  13. Regaining control: • Today • 1.8 million tonne reduction in US and Mexican production has given the reins back to USDA • Longer term: • Limit Imports from offshore • AD/CVD case • Limit domestic marketings, if necessary

  14. US International Trade CommissionInvestigation nos. 701-TA-513 and 731-TA 1249 – Sugar from Mexico • Seeks the institution of antidumping and countervailing duties (AD/CVD) on sugar exported from Mexico • The petitioner is the American Sugar Coalition • Alleged dumping margin: 30.00 % to 64.31 % • Subsidization covers a range of actions from tax and interest forgiveness to the sale of mills at below market value

  15. Important Dates*: *Estimated and subject to change Source: ITC Handbook

  16. Mexican and USSupply and Demand

  17. Mexico: • 2013-14 crop 955,000 lower than prior year. • Exports to US heavily front-loaded as tail of record 2012-13 crop was cleared • Sept. 30 stocks insufficient to bridge to new crop – last crop, week ended November 30th was the first where production exceeded consumption • Working assumption: 10.5 weeks of stocks needed on September 30. Only roughly 7.5 weeks on hand Sept 30, 2014 – imports likely

  18. Mexico FY’14: 1,000 MTTQ USDA (July) JSG Beginning stocks 1460 Production 6020 Imports 250 Total supply 7730 Exports2358 US 1717 ROW 641 Food use 4690 Total use7048 Ending stocks 682 • Beginning stocks 1460 • Production 6025 • Imports 226 • Total supply 7711 • Exports 2358 • US 1717 • ROW 641 • Food use 4690 • Total use 7048 • Ending stocks 663 Average ending stock last 10 years: 1.220 million mttq Source: USDA/JSG

  19. USDA vs. JSG S&D: FY’14 2013-14 USDA 2013-14 JSG Source:USDA/JSG

  20. Mexico FY’15: 1,000 MTTQ USDA (July) JSG Beginning stocks 682 Production 5900 Imports 250 Total supply 7032 Exports1395 US ? ROW ? Food use 4690 Total use6085 Ending stocks 947 • Beginning stocks 663 • Production 6140 • Imports 450 • Total supply 7253 • Exports 1616 • US 1606 • ROW 10 • Food use 4690 • Total use 6306 • Ending stocks 947 Average ending stock last 10 years: 1.220 million mttq Source: USDA/JSG

  21. USDA vs. JSG S&D: FY’15 2014-15 USDA 2014-15 JSG Source:USDA/JSG

  22. 2014 Beet Crop: • For Colorado, Michigan, Minnesota, North Dakota and Wyoming: • Together account for 74.33 % of forecast harvested area for 2014 crop • Minnesota 37.38 % Weighted average for these states as of 7/28: Very Poor Poor Fair Good Excellent 1 11 37 38 13 Source: NASS/USDA

  23. Beet crop condition: MN Source: USDA/FAS

  24. Beet crop condition: MN Source: USDA/FAS

  25. USDA vs. JSG S&D: FY’15 No resolution 2014-15 USDA 2014-15 JSG Additional imports of 1.597 million tons needed to achieve 13.5 % stocks/use ratio Source:USDA/JSG

  26. Assumptions: • AD/CVD case will likely run its full course • No final determination until Late December/early January • Suit will succeed • Mexico not a meaningful exporter before February • Will likely import in Q4 • Mexico is only a net surplus producer due to access to US economics • Production will drop to match consumption if prohibitive duty is imposed and maintained

  27. Outlook: • Unsettled transition to the new reality: • Managed market with USDA setting supply • If case is not settled until the Q1’15 and no further action is taken to increase supply: • October through March/April – ample physical supply, but market starved for price liquidity • 67 % of pricing accommodated in artificially tight environment • If USDA announces a further TRQ increase before September 30: • Too much physical sugar, too much selling for November. Existing Q’4 supply displaced – turbulence • Removes “capital” to finance an eventual deal with Mexico

  28. Outlook cont. • 2014-15 • No increase this summer, no deal with Mexico by March • March and May futures 28.00 - 30.00, refined prices in 36.00-39.00 • July and September 4.50 over #11 – 23.00 • Disproportionate selling in final 33 % of year • 200,000 tonne (refined?) increase in September for arrival by November • November 23.50, May 26.50, refined 33.50-35.00 • July and September 4.50 over #11 – 23.00 • Beyond • Once Mexican access is defined, orderly market with either WTO quota holders or Mexico filling US deficit • #11 will be relevant driver for US pricing • USDA temperament and/or level of Mexican duty critical

  29. You get what you pay for:#16 raws vs. #11 raws: 4/1/13 – 7/31/2014 Source: ICE Futures US

  30. World Market Relevance: • World market likely headed into deficit • #11 market well below Brazilian cost of production/level needed to spur investment • US raws price needs to be 2.50 to 3.50 cents over #11 for import parity • If AD/CVD is imposed and sustained, Mexico will remain a threat • World market weakness can translate into lower US values

  31. Conclusions: • We have no conclusions • Draw your own conclusions at your peril • What we think we know: • Transition to New NAFTA will be rocky • Prices will remain firm through the spring of 2015 • From there, the script remains to be written

  32. Thank you!

  33. US and Mexican Sugar Complex A return to managed (and manageable) trade? August 4, 2014 Stowe, Vermont

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