Sugar price increases put food makers on alert

Discussion in 'Wall St. News' started by S2007S, Aug 14, 2009.

  1. S2007S


    I remember a year ago when wheat prices ran to new highs and every pizza and bagel place starting hiking up prices 20%, 40% 100%, well of course prices dropped in half, do you think these businesses dropped their prices after the prices of wheat fell?? Fu$k no they didnt, prices for a slice of pizza are still $2.50-$3.00 near me. Now we have a "SHORTAGE" of sugar, uh oh, here comes the price increases on cakes, cookies, chocolate, candy, forget it, this will be just the same as the whole increase in price of wheat we saw a year ago.

    Sugar price increases put food makers on alert
    Big companies warn of a shortage and ask the U.S. to ease import quotas. Domestic sugar producers say there's plenty available and that raising quotas could drive them out of business.
    By Jerry Hirsch

    August 14, 2009

    The price of sugar on world markets has soared this year, prompting a coalition of the nation's largest food manufacturers to warn of a pending shortage and to ask the Agriculture Department to ease quotas on imports.

    But although prices have risen domestically and abroad, analysts say fears of empty supermarket shelves are overblown and that the gloomy outlook of big food companies is really part of a larger effort to pressure the government into dismantling sugar trade barriers.

    The futures price of sugar traded on world markets closed at 22.2 cents a pound Thursday, down about a penny from the previous day but still up 72% in six months. Weather problems in the sugar-producing regions of India, the diversion of Brazilian sugar cane to produce ethanol, and a growing global sweet tooth are behind the increase, according to analysts.

    In a recent letter to Agriculture Secretary Thomas Vilsack, the group warned of "unprecedented shortages." Without higher quotas on sugar imports, "consumers will pay higher prices, food manufacturing jobs will be at risk and trading patterns will be distorted," the food companies said.

    There is considerable debate about whether the run-up in sugar prices is a sign of a looming crisis. Just a fraction of global sugar supplies is traded on international markets. And according to the USDA, the wholesale price of sugar in the United States has risen by just 15% from a year ago to a little under 35 cents a pound.

    "I do not think there will be a severe sugar shortage for U.S. food manufacturers in the near future," said Tom Graves, a Standard & Poor's equity analyst who follows the big food companies.

    Graves said the warning by the food companies was more about the politics of sugar quotas than price spikes or shortages.

    With the exception of Mexico, which the North American Free Trade Agreement freed from quotas, U.S. trading partners are limited to exporting no more than a combined 1.3 million metric tons of sugar to the United States this year. Mexico will account for roughly the same amount of U.S. sugar imports. The United States consumes about 10 million metric tons annually, according to the American Sugar Alliance, the trade group that represents domestic sugar farmers.

    Food companies have contended that raising the quotas will increase supply and drive down prices. Sugar producers have vigorously defended any attempts to change the rules, claiming that increased quotas could at some point push prices below the cost of production and drive them out of business.

    The USDA is staying out of the battle for now. Spokesman Justin DeJong said the agency would "continue to monitor market developments."

    Some of the biggest names in domestic food production, including Hershey Co., Kraft Foods Inc., Mars Inc. and Unilever United States Inc., are part of the coalition seeking higher quotas. The four companies declined to answer questions from The Times about sugar quotas, prices and supplies.

    Though sugar supplies are tighter than in previous years, accounting for rising prices, the nation is far from a sugar crisis, Graves said.

    Supermarkets report plentiful supplies -- as well as price increases.

    The wholesale price that San Bernardino supermarket chain Stater Bros. pays for sugar rose 10% this week, according to Jack Brown, chief executive of the large regional grocery chain. Stater Bros. does not intend to pass the entire increase through to consumers, he said. A 5-pound bag of Stater Bros. sugar sells for $2.69, or just under 54 cents a pound.

    Sprinkles Cupcakes of Beverly Hills also has seen prices rise by about 10% for the 50-pound bags of sugar the gourmet bakery purchases, said Charles Nelson, who founded the company with wife Candace.

    "Since we opened four years ago, the price of our ingredients is up 40%. We just have to deal with these commodity price fluctuations," he said.

    The CEO of a mid-size candy company said many big food manufacturers probably bought advance contracts for sugar when prices started to rise, mitigating the worst of the run-up.

    "This was a slow-moving increase, and people had time to plan," said the executive, who asked that his name not be used because he did not want to alert competitors to his hedging strategy.

    The dire warnings of the food manufacturers were mocked Thursday by the American Sugar Alliance.

    Sugar producers are unaware of a single buyer having problems finding the commodity, said Phillip Hayes, a spokesman for the alliance.

    The group posted a notice on its website asking "any large food manufacturers claiming sugar shortages" to contact Jack Roney, an executive at the alliance, at the phone number provided.

    "Every sugar producer in America has sugar available to sell," the group said, "and the American Sugar Alliance can provide contact information for numerous suppliers."
  2. be a great omen for america to lighten up on sugar