Worries are mounting that beet sugar companies may default on U.S. government loans as sugar inventories swell, heightening pressure on the U.S. government to rework a 2014 trade pact with Mexico, experts said.
A default on loans would result in the companies giving back to the government sugar that was used as collateral, or "default sugar."
Rising inventories could prompt beet sugar cooperatives to default extra inventories of sugar to the government as early as this year, said Frank Jenkins, president of JSG Commodities in Connecticut, during a panel at an industry conference in Coeur d'Alene, Idaho. There's a "massive stock" of refined beet sugar being carried into a 2016/17 crop year expected by the U.S. government to see a record beet crop, Jenkins said. The United States and Mexico are currently discussing changes to a trade deal that U.S. cane refiners have said starves them of supplies. The US Department of Agriculture increased import quota for raw sugar this year in response.
Demand for cane sugar has risen as companies shift away from genetically-engineered ingredients, and traditional cane refiners are competing with makers of liquid sugar over raw supplies. Meanwhile, inventories of beet sugar—produced almost entirely of genetically-engineered seeds—have swelled this year. More are expected: The U.S. government has forecast beet farmers will produce record supplies next year.
To be sure, no one is expecting a repeat of 2013, when tanking prices prompted U.S. companies to default sugar en masse instead of repaying government-backed loans in cash. That year, the USDA spent hundreds of millions of dollars scooping excess sugar from the market.
Still, the possibility of defaults could complicate running the USDA sugar program, especially with cane refiners pressing for more foreign supplies of raw cane sugar. The program is designed to run at no cost. The United States and Mexico hammered out a trade deal in late 2014 that set minimum prices and a quota for sugar imports from Mexico, the culmination of a more than year-long anti-dumping investigation by the US government.