U.S. Sells Sugar at Loss to Ethanol Maker to Ease Surplus

Source: By Alan Bjerga -, Bloomberg • Posted: Tuesday, September 3, 2013

The U.S. Department of Agriculture sold 7,118 short tons of beet sugar to an ethanol producer at a loss of $2.7 million as part of a program to reduce a domestic surplus of the sweetener and stave off government subsidies.

The sugar was purchased by the USDA’s Commodity Credit Corp. for $3.6 million and then sold it for about $900,000 to Front Range Energy LLC, a Windsor, Colorado, producer, the department said today. The sweetener, for which the USDA sought 25.2 cents a pound, was purchased for 6 cents. The transaction was the first under the Feedstock Flexibility Program created in 2008.

“It’s a pretty weak result,” Tom Earley, an economist with Agralytica, a food and agriculture consulting firm in Alexandria, Virginia, said in a telephone interview. “It’s clear that, given lower corn prices and lower ethanol prices, that the amount that ethanol producers are willing to pay is quite low.”

A plunge in sugar prices prompted the USDA to seek ways to dispose of surplus sweetener used as collateral for government loans. Biofuel producers including Valero Energy Corp. (VLO), the third-biggest in the U.S., and Green Plains Renewable Energy Inc. (GPRE), the fourth-largest, decided not to bid. Most U.S. ethanol plants are geared to using corn, the biggest domestic crop, and the price of the grain has tumbled this year.

Limited Participation

“Transportation, volume of sugar feedstock and other concerns appear to have limited bioenergy company participation,” the Agriculture Department said in its statement. “The USDA expects greater participation in FFP as these concerns are addressed.”

According to the Renewable Fuels Association, Front Range Energy operates one corn ethanol plant with a capacity of 40 million gallons a year. A phone call and e-mail to the company were not returned.

Bids were due Aug. 28 for buyers and sellers of sugar under the program, which is meant to dispose of surplus supplies used as collateral for government loans. The effort to decrease this year’s record sugar surplus may help the government avoid forfeitures on raw-sugar loans that totaled $81.53 million earlier this week.

“The subsidies that the USDA has to pay to make it happen are not going to be much different than what the cost of forfeitures would be” without the program, Earley, the economist, said.

Cheap Corn

Many ethanol producers expecting a record corn crop don’t see sugar as a competitive product, Todd Becker, chief executive officer of Omaha, Nebraska-based Green Plains, said earlier this week.

Last year’s drought drove corn futures to a record $8.49 a bushel. Farmers responded by planting what’s expected to be a record crop of 13.76 million bushels this year. That’s pushed the price of the grain down 40 percent in the past year to $4.82 at today’s close in Chicago.

Record domestic sugar output in the current season and increasing imports, especially from Mexico, pushed U.S. prices in July to 18.7 cents a pound, the lowest since at least 2008 and below the loan-default level, or about 21 cents.

Domestic sugar on ICE Futures U.S. in New York closed today at 21.23 cents, while world prices closed at 16.34 cents a pound. The U.S., which for decades has artificially raised market prices by limiting imports under international agreements, already is using export credits to reduce the surplus.

Ethanol is blended with gasoline as part of a 2007 U.S. energy law, known as the Renewable Fuels Standard, which calls for refiners to use 13.8 billion gallons of the fuel this year and 14.4 billion in 2014. Ethanol is typically sold in a combination known as E-10, with 10 percent of the mix made up of the biofuel and the rest gasoline.