Washington — Sugar processors are defaulting on 85,000 tons, or $34.5 million worth, of sugar put up as collateral for USDA loans, marking the first default since 2005.
Record production, particularly in Mexico, and a steep decline in prices from the year prior are to blame as sugar ICE futures traded at 21.02 cents a pound Thursday, just above the USDA’s estimate that prices must be above 20.9 cents a pound to avoid defaulting. The agency says there is “substantial risk” for more forfeitures on the $307 million in loans due at the end of September.
Earlier in the summer, the USDA spent more than $61 million to reduce the sugar surplus in the form of purchases and export credits. It sold some of the excess sugar to ethanol producers at a loss under the Feedstock Flexibility program, the first time the agency implemented the plan since its introduction as a provision under the 2008 Farm Bill.
The Coalition for Sugar Reform strongly opposes the U.S. sugar program and continues to encourage Congress to modify the policy, an action that is not inclusive of neither the House nor the Senate’s versions of the Farm Bill, which is currently being hashed out in Congress.
“Despite USDA’s best efforts to manage the sugar surplus, the fact is, the current sugar program is the root cause of U.S. sugar market instability and rising costs to American taxpayers,” the Coalition for Sugar Reform says. “In July alone, USDA was forced to spend nearly $51 million in taxpayer dollars to purchase excess domestic sugar and remove it from the U.S. market — to keep U.S. sugar prices high and U.S. sugar producers profitable. With news that the Feedstock Flexibility Program is being implemented, now taxpayers may potentially have to shell out millions more. None of this is USDA’s fault. Congress mandated the sugar program, and only Congress can fix it.”