USDA initiates surplus sugar-for-ethanol programme

August 18, 2013

The USDA on Thursday inaugurated a programme to buy unwanted sugar and sell it at a loss to ethanol makers to produce more biofuels and help mitigate a costly sugar surplus. It was the first time the Obama administration used the so-called Feedstock Flexibility Programme, created under a 2008 law with the goal of making sugar into a biofuel feedstock such as in Brazil.

“This has been anticipated, but nobody knows if any sugar guy is going to use this or not,” said Craig Ruffolo, a partner with brokerage and consulting firm McKeany-Flavell in Oakland, California. “I don’t know if people will forfeit or sell to the government first. On the ethanol side, it’s a matter of buying at the right price.” The Agriculture Department asked for offers from sugar processors by Wednesday to sell raw cane sugar or refined beet sugar that is pledged under USDA price-support loans maturing on August 31. The minimum offer is 5,000 tons, said USDA. Ethanol makers were given a deadline of August 28 to submit bids for the sugar. USDA said it would notify the successful bidders by mid-day on August 29.

Earlier this week, USDA estimated a sugar surplus of 2.3 million tons at the end of September, a huge amount that could drive up the cost of sugar subsidies by hundreds of millions of dollars. Raw sugar futures closed at 20.50 cents per lb on Thursday in New York, below the 20.9 cents guaranteed by USDA under the sugar subsidy programme and which would prompt loan holders to forfeit sugar to the government and keep the loan money. Refined beet sugar prices were around 26 cents a lb. Some 797,400 tons of sugar was under loan for $385.8 million at present, according to USDA data.

Informal estimates say USDA could sell the surplus sugar for less than 10 cents a lb because of the cost of shipment to an ethanol plant and because sugar is relatively unproven as a feedstock in US plants. Traditionally, sugar has been a high-value food. In the euphoria of the ethanol boom that began nearly a decade ago, Congress created programmes to expand the biofuels industry across the nation and to popularise raw materials such as woody plants and sugar. Courtesy Reuters

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