Mexico. Sugar Annual. Apr 2014 May 1, 2014
Sugar production for marketing year 2014/15 is forecast to be slightly higher, at 6.89 MMT-RV, than in MY2013/14, as rainfall during the current cycle has been favorable. Sugar production for MY 2013/14 was revised downward to 6.87 MMT-RV due to overall lower performance of the industry. The sugar export forecast for MY 2014/15 is 2.0 MMT-RV. Exports for MY 2013/14 were revised upward to 2.9 MMT-RV. The HFCS import forecast for MY 2014/15 is expected to be down compared to MY 2013/14, as sugar prices have continued to remain low. The American Sugar Alliance has petitioned the Department of Commerce to initiate antidumping and countervailing duties investigations of the Mexican sugar industry.
The Mexican sugar industry expects sugar production levels for marketing year (MY) 2014/15 (October/September) to be slightly higher than in MY 2013/14, as weather has been favorable. Although there is not yet an official Mexican forecast for sugar production for MY 2014/15, the Post/New forecast is 6.89 million metric tons - raw value (MMT-RV). According to recent reports, renewal of cane fields continues. Final production will depend on timely maintenance of sugar mills, appropriate cultivation practices, weather throughout the growing season, and harvest conditions.
The Mexican National Committee for the Sustainable Development of Sugar Cane (CONADESUCA) issued on April 14, 2014 a Second Estimate of Sweeteners Production for MY 2013/14. Therefore, Post/New estimate for MY 2013/14 sugar production has been revised downward to 6.87 MMT-RV (6.48 MMT-Actual Weight). Other sources estimate sugar production could be even lower, at about 6.57 MMT-RV. CONADESUCA’s sugar production first estimate was forecast at 7.0 MMT-RV and mill yields were estimated at 11.53 %.
Comparing data of the last Advance Report # 21 with the first estimate on sugar production, the overall performance of the industry has not been as expected (mostly due to weather), as there is an accumulated sugar production shortfall of about 372,000 MT- Actual weight, compared to the first estimate expectations.
According to reports from CONADESUCA, about 19 sugar mills in the states of Jalisco, San Luis Potosi, Tamaulipas, Nayarit, Quintana Roo, Colima, Tabasco and Puebla performed below first estimate expectations for sugar production, largely due to adverse weather, including rain. In addition, four mills will not operate for MY 2013/14--Avance Regional (Primavera) in Sinaloa, Independencia, La Concepcion and Nuevo San Francisco in Veracruz. The mills of San Gabriel in Veracruz as well as Los Mochis in Sinaloa could still begin operations. Also, the mill La Joya in Campeche, stopped milling for 11 weeks due to sugar price disagreements with cane growers. The cane that would have gone to these mills, however, has been diverted to other mills for processing so overall sugar production has not been as affected. Through April 5, 2014, 51 sugar mills were in operation. According to the Advance Report # 21, with respect to the first estimate, 62.21 percent of area has been harvested, 65.84 percent of sugarcane has been milled, and 62.42 percent of sugar has been produced. Official production estimates in Mexico for MY 2012/13 remain unchanged from our previous report.
In the last marketing year, CONADESUCA began to compare sugar production of the current marketing year with an average of the last 5 marketing years.
Growers are organized within two major unions that represent over 95 percent of all cane growers. These unions are the National Sugarcane Growers (affiliated with the CNC- a strong organization of peasants/small agricultural producers and is very close to the PRI Party) and the National Association of Sugarcane Growers (CNPR). All growers operate with contracts to deliver their cane to contracting mills. In exchange, they receive technical support and agrochemicals from the mills to grow cane. The industry has been fostering better working relationships between mills and sugarcane grower associations to better integrate overall sugar production.
Although there is no official Mexican forecast for sugarcane production for MY2014/15, the Post/New forecast of cane to be industrialized is 57.5 MMT, slightly higher than Post’s cane production estimate for the current year, as more cane has been planted in 2013. However, actual production will depend on appropriate cultivation practices, and weather conditions throughout the growing season. Current low sugar prices may discourage best management practices (e.g., less fertilizer applications) and expansion of production areas. The Post/New estimate for sugar cane production to be industrialized for MY 2013/14 was revised up to 57 MMT. The industry estimates overall cane yields at 70 MT/hectare (Ha) for MY 2013/14, lower than MY 2012/13 yields of 78.7 MT/Ha. Sugar cane production for MY 2012/13 remains unchanged.
As previously reported, virtually all sugar cane goes to the production of centrifugal sugar. Mills operate between November and May to coincide with the cane harvest. Although there is no official Mexican MY 2014/15 forecast for sugar cane planted area, the Post/New forecast is close to the previous marketing year, or 820,000 Ha. According to the information service SAGARPA/SIAP, area planted data includes area planted in past marketing years, as well as additional new areas, since the growing phase of this crop is approximately 18 months. In addition to sugar prices, area expansion will depend on weather conditions, production cost changes, and the level of continued investment by sugar mills. Post’s/New estimate for MY 2013/14 for area planted is 835,000 Ha and for area harvested 819,000 Ha, based on CONADESUCA’s first estimate. The Post/New MY 2012/13 planted and harvested estimates remain unchanged.
Sugarcane Reference Price
Cane growers receive payment for their cane from sugar mills. The price is negotiated each year and is based on a complex formula involving sugar prices and other domestic and international market conditions. These factors are used to determine the Sugarcane Reference Price. According to Article 58 of the Law of Sustainable Development for Sugar Cane, approximately 57 percent of the Reference Price is paid to growers for their sugar cane. Throughout the year, depending on prices, two additional payments can be made to growers. The first opportunity is during the summer after mills have made significant sales. At the end of the cycle, a final adjustment is made, resulting in the next marketing year’s Sugarcane Reference Price and a potential final payment to growers. As announced by the Secretariat of Economy (SE) on October 30, 2013, the standard sugar Reference Price to calculate sugar cane payments for the MY2013/14 crop is $6,697.06 pesos per MT ($511.22 dollars/MT at $13.10 pesos per dollar exchange rate). This price is almost 37% less than the price announced at the same time last year for MY 2012/13, or $10,617.72 pesos per MT ($827.56 dollars /MT).
Sugar Wholesale Prices
The SE, through the National Market Information Service (SNIIM), reports sugar prices on a monthly basis delivered to different cities in Mexico from different mills. Sugar prices suffered a steep decline (off nearly 40 percent) that began in August / September 2012. This decline resulted from domestic sugar oversupplies and the fall of international sugar prices. The decline caused concern in the sugar sector as domestic sugar prices strongly impact the eventual level of payments received by cane growers. Prices for the new crop 2013/14 initially rose modestly, though in February, prices again dropped.
The Mexican high fructose corn syrup (HFCS) industry believes it will continue producing HFCS at almost the same levels as in the previous year. CONADESUCA’s Second Estimate of Sweeteners Production for MY 2013/14 increased its HFCS domestic production estimate to 503,186 MT dry basis compared to 494,124 MT dry basis in MY 2012/13. This level is nearly at the industry’s maximum capacity. Industry members indicate that there is no additional HFCS manufacturing capacity being built or expanded in Mexico. Sources report that as long as HFCS prices remain competitive, it is easier and more financially prudent to import the remainder of the HFCS demand.
The Mexican HFCS industry produces fructose with domestic and imported U.S. yellow corn. According to IDAQUIM, the industry group that represents HFCS producers, this industry consumes about two million tons of yellow corn of which 80 to 90 percent is imported. The Government of Mexico continues to encourage forward contract purchases between Mexican farmers and yellow corn buyers in an attempt to increase domestic production of yellow corn.
Under the current administration’s plan, SAGARPA proposed to convert some areas of white corn production into yellow corn production areas. The United States will remain the main supplier of corn to Mexico.
In early January 2014, producers, entrepreneurs and associations throughout the corn industry, presented the "2020 Strategy of Promoting Yellow Corn Production in Mexico" to the Secretariat of Economy (SE). This strategy seeks the conversion of one million hectares of white corn to yellow corn, in irrigated regions and good rain-fed areas by 2020, beginning with 150,000 hectares in 2014. The main objectives include supplying yellow corn to domestic industrial users, to develop permanent suppliers through the "Forward Contracts Program" and thus promote substituting imports of yellow corn to domestic yellow corn.
Sugar and HFCS
Assuming current pricing trends for sugar and exchange rates, and slightly lower availability of sugar next year, the sugar industry could expect sugar consumption for MY 2014/15 to grow at a slow rate. Therefore, the Post/New forecast for domestic consumption for MY 2014/15 is 4.6 MMT-RV. Consumption will also depend on the substitution of sugar by HFCS. The Post/New domestic sugar consumption estimate for MY 2013/14 was revised downward to 4.5 MMT-RV, based on CONADESUCA’s estimates. Trends indicate that substitution between sugar and HFCS will likely result in a 4.8 percent decrease in HFCS consumption in MY 2013/14.
In January 2014, a value added tax of $1.00 peso/liter (US $0.076/liter) was imposed on sweetened soda drinks. Sources indicate that a decrease in consumption is not expected as a result of the tax. However, this estimate could change as time goes by and consumers decide whether or not to keep buying soft drinks at slightly higher prices. For example, a retail soda drink (600 milliliter bottle) increased in Mexico City at certain stores from $7 pesos to $8 pesos (US $0.51 to US $0.59). The domestic sugar consumption estimate for MY 2012/13 remains unchanged.
HFCS has been replacing sugar consumption in several industries including soda bottling (the largest user of HFCS) over the last few years. However, for MY 2012/13, HFCS consumption decreased about 8.9 percent compared to MY 2011/12 levels, due to the sugar oversupply and resulting low prices. CONADESUCA estimated HFCS consumption for MY 2012/13 at 1,567,199 MT dry basis. This volume represents about 26.7 percent of total domestic consumption of sweeteners. For MY 2013/14 the HFCS consumption forecast is 1,492,141 MT dry basis.
The Post/New sugar export forecast for MY 2014/15 is 2.0 MMT-RV. This number is tentative and will tend to change depending on production, U.S. and international sugar and sweeteners (HFCS) prices, and the degree to which the Mexican industry is able to reach its stated goal of exporting as much sugar as possible to third country markets. This last factor makes forecasting Mexican exports abnormally difficult.
The sugar sector has been concerned about domestic sugar oversupplies and falling international sugar prices. These factors have combined to reduce domestic sugar prices by 40 percent in calendar year (CY) 2012. This trend continued during CY 2013. For the new crop of MY 2013/14, prices initially showed a tendency to rise but fell again by February/March 2014. To manage downward pressure on domestic prices and prevent sugar oversupplies in the domestic market, the sugar industry and the Mexican government (via the quasi-government controlled mills—FEESA) agreed to export at least 2.5 MMT-RV for MY 2013/14, dividing about 1.1 to 1.2 MMT of sugar to third countries and about 1.2 or 1.3 MMT to the U.S. market. Considering this information and total sugar production, the Post sugar export estimate for MY 2013/14 has been revised upward to 2.9 MMT-RV. According to CONADESUCA’s report, through March 15, 2014 about 1.23 MMT-RV have already been exported. Final exports will vary depending on prices, final production and the extent of substitution between sugar and alternative domestic and imported sweeteners (HFCS). The sugar export estimates for MY 2012/13 remain unchanged from the previous estimate.
The Post/New sugar import forecast for MY 2014/15 is estimated at 240,000 MT-RV, as domestic supplies are expected to remain elevated. A large portion of these imports could be used to cover the needs of the Mexican Sugar Re-export Program industries (IMMEX). IMMEX sugar users will likely substitute more domestic sugar for imported sugar, compared to previous years when imports for IMMEX were larger. The MY 2012/13 and MY 2013/14 sugar imports estimate were revised upward from the USDA/Official estimates to 240,000 MT-RV respectively.
Sugar use under the “other disappearance” category is mainly for the Mexican re-export program (IMMEX). The Post/New forecast for MY 2014/15 for sugar use under IMMEX is expected to be at 400,000 MT-RV very similar to MY 2013/14 sugar use. According to sources, the same industries will be using imported sugar for the processing of their products. Post/New MY 2013/14 sugar use for IMMEX industries is estimated at 400,000 MT-RV and Post/new estimates for MY 2012/13 for sugar use under IMMEX is 407,000 MT-RV. The IMMEX program allows sugar to be sold to Mexican food manufacturers as a raw material for further processing. These food manufacturers must then process the sugar within six months of the date of purchase and export the processed product. Although this report does not consider these products when calculating sugar exports, the Government of Mexico classifies the sugar containing products sold under the IMMEX program as exports of sugar.
The HFCS import forecast for MY 2014/15 is expected to be down compared to MY 2013/14 imports as sugar prices have continued to remain low. According to CONADESUCA’s Second Estimate, imports of HFCS will be 1.02 MMT dry basis compared to MY 2012/13 imports of 1.1 MMT dry basis. According to sources, lower consumption of HFCS by soda drink companies during the last months of the year and the beginning of 2014 could be a result of higher prices for sodas. However, this estimate could change as time goes by and consumers decide whether or not to keep buying soft drinks at slightly higher prices.
The Post/New sugar ending stock forecast for MY 2014/5 is 907,000 MT-RV based on expected sugar production and exports. MY 2013/14 stocks were revised downward to 777,000 MT-RV based on expected lower sugar production. However, sugar prices and exports will determine the final data. The Post/New sugar ending stock estimate for MY2012/13 remains unchanged.
On September 8, 2013, a Tax Reform Initiative was proposed to Congress whereby, among other subjects, a special tax on calorically sweetened soda drinks was being proposed to help combat obesity and the incidence of being overweight in Mexico. The Lower House approved the Tax Reform initiative on October 10, 2013 and the Senate on October 30, setting an enforcement date of January 2014. The tax is $1.00 peso/liter (US $0.076/liter). As with most other goods and services, sweetened soda drinks already have a value added tax of 16 percent.
Anti-Dumping and Countervailing Duties Petition Against Mexico
The American Sugar Alliance filed an antidumping case against Mexico on March 28, 2014, asking the U.S. government to take corrective action against Mexico’s sugar industry for exporting subsidized sugar into the U.S. market and harming U.S. growers and taxpayers. The antidumping and countervailing duty petitions filed with the U.S. International Trade Commission and Department of Commerce allege that the Mexican industry has shipped sugar to the U.S. at dumping margins of 45 percent or more and has received substantial subsidies from Mexico's federal and state governments. Due to this issue, consumption and trade data could change from what has been indicated in this report