Dr. Johansson: Sugar Forecasts and the Farm Safety Net

Column authored by Dr. Robert Johansson, Associate Director of Economics and Policy Analysis at the American Sugar Alliance.

The vernal equinox, aka spring equinox, came and went Sunday, March 20, marking the end of winter and the beginning of spring.

As all good aggies know, that means the economists at the Food and Agricultural Policy Institute (FAPRI) at the University of Missouri have just published their new 10-year baseline for agricultural production and programs.

That baseline is adjusted by University of Missouri economists to reflect more recent 2022 prices and economic conditions compared to the earlier U.S. Department of Agriculture (USDA) baseline published in part in November and in full in February. Most of the data and assumptions used for these projections came from the January time frame, however. That means that a lot of the impacts one might expect from the conflict between Russia and Ukraine and disruptions with Black Sea deliveries will not be reflected in this baseline.

For example, while fertilizer prices are assumed higher for 2022/23 in this baseline compared to the 2021/22 crop year, the extreme rise in fertilizer prices since the conflict began and the likelihood that Russia and Belarus will have continuing difficulties with exporting goods are not captured in this report. As another example, this baseline does not include the projected increases in interest rates announced by the Federal Reserve Open Market Committee in March.

From a sugar perspective, the equinox also marks the tail end of the sugarcane harvest (with some acres left to harvest yet in Florida and Texas) and the beginning of sugarbeet planting.

Taking stock:

  • we expect record domestic sugar production at 9.4 million tons in 2021/22, despite challenges ranging from historic drought in the Northern Great Plains to hurricanes battering the Gulf Coast shores and a freeze in Florida this January; and
  • the projections for next year are for a continued increase in production to more than 9.7 million tons in 2022/23.

With record production for American sugar farmers this year and next, there will be more than an adequate supply of sugar to fulfill our nation’s needs. Projected imports for this year and next are expected to continue to decline from the recent high of 4.2 million tons in 2019/20.

Looking forward, FAPRI expects overall sugar demand to grow by nearly 1 million tons over the next 10 years, as the number of people in America grows over time. Per capita consumption of sugar has been relatively flat over the recent 10-year period, while consumption of high fructose corn syrup has been falling.

Sugar demand growth is met with expected growth in domestic production, but U.S. sugar policy also gives 41 countries, most of them developing nations, preferential access to our market to ensure that consumers always stay stocked with this essential ingredient. In fact, the U.S. is the third largest sugar importer in the world. Overall stocks-to-use remain near 14.5%, indicating ample stocks of sugar are projected to be available on average over the projection period.

While FAPRI does not explicitly discuss government program costs for sugar, USDA in their 10-year baseline continues to project a sugar program cost of $0 over the next 10 years. And in the FAPRI baseline with rising production in the U.S., sugar prices for raw cane sugar and refined beet sugar are expected on average to remain above the loan rates.

However, with any good economic forecast there are both positives and negatives. An area worth keeping an eye on is rising costs of production. Both FAPRI and USDA expect agricultural costs of production to continue to increase over the next 10 years. FAPRI has input costs rising by 24% and USDA has input costs rising by 8% over the baseline period, which again does not include any developments from February or March. FAPRI projects the farm debt-to-asset ratio creeping up to 15.7% by 2031 (which would be the highest since 1989 if realized), reflecting rising costs of production and stagnant prices for outputs.

In the face of such anticipated challenges, it is critical that Congress continue to back a strong farm safety net including a no-cost sugar policy in order to allow continued investments in farm productivity and refining efficiencies.