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ARLINGTON,
Va. (Dow Jones)--If U.S. sugar policy continues as it is, the sugar
trade may find participating in the market too risky, Frank Jenkins,
president of sugar brokerage Jenkins Sugar Group, Inc., said
Friday.
"I
would argue that the sugar trade's risk/reward ratio would argue
against participating in the U.S. market at all, and that current
sugar policy has played a major role in skewing that ratio," he
said on the final day of the U.S. Department of Agriculture's annual
Outlook Forum.
His
presentation was scheduled to follow those by domestic sugar growers
and processors, who argue that current sugar policy's supply
management scheme is necessary to stabilize prices.
More
than 23% of the U.S. raw sugar supply for domestic consumption comes
from 40 quota-holding countries.
"You
may ask yourself, why should a trader's comfort level be of concern
to other market participants? The trade is sometimes viewed as
opportunistic or even mercenary in their dealings. I would argue
that the operator plays a seminal role in the workings of the U.S.
market," Jenkins said.
The
trade provides the means to finance and freight these sugars from
origin to the U.S., he said.
So
while the trade takes on large risks as part of doing business, the
risks are growing to where the trade may stop taking them, he
said.
"One
need only look at the volumes traded on the New York Board of Trade
Sugar number-14 contract, or count the number of traders currently
involved in the U.S. sugar market on a day-to-day basis for evidence
of the trade's reluctance to participate," Jenkins said.
The
number-14 futures contract at the Coffee, Sugar & Cocoa Exchange
is based on domestic sugar.
Quota
Holders List Badly Outdated, Jenkins Says
Jenkins
found fault with several aspects of current sugar policy, including
market access, the relationship with Mexico and USDA administrative
issues.
These
factors are hiking traders' risk "in an unmanageable way and to
an intolerable level," he said.
Specifically,
Jenkins said the current list of quota holders is badly outdated
because it is based on the period from 1975 to 1981. Many of the
countries are net importers and others are inconsistent shippers.
"One
way to address this in efficiency would be the adoption of a
first-come, first-served quota scheme, which would significantly
enhance the trades' ability to deliver raw sugar to the market in a
more efficient manner," he said. "The USDA could still
manage this flow through the use of quarterly shipping
patterns."
Jenkins
also found fault with the fact that the USDA still hasn't issued
quota eligibility certificates that would allow Mexico to export its
116,000-metric-ton sugar quota to the U.S.
"With
each week and month that passes, the logistical impediments of
moving 116,000 tons of Mexican sugar to the U.S. grow more
daunting," he said. "As long as a broader comprehensive
sweetener agreement between the U.S. and Mexico is pending, the
prospect of significantly increased Mexican access overhangs the
market."
Jenkins
said USDA's Commodity Credit Corporation needs to be more specific
about its stock holdings.
"Due
to the fact that the CCC is holding massive stocks, the ultimate
disposition of which remains a mystery, ending stocks are not known
within 793,000 tons," he said.
Based
on the USDA's February World Agricultural Supply and Demand
Estimates report, actual accessible ending stocks are between 1.234
million short tons and 2.027 million tons. That puts the
stocks-to-use ratio anywhere between 11.8% and 19.4%, he said.
"Taking
steps immediately to clarify the disposition of these stocks would
clarify the supply and demand picture, allowing for better
decision-making," Jenkins said.
In
the last year, the USDA has intervened in the market by purchasing
sugar, plowing under beet crops, delaying the quota announcement and
leaving some of the quota unallocated. At the same time, the USDA
has had to deal with forfeitures under the sugar loan, he
said.
"For
traders attempting to judge a market with an eye on risk management,
such constant intervention makes the process hopelessly
complex," Jenkins said.
The
best situation would be a market completely free from intervention,
he said.
"While
this isn't realistic, given that only a small percentage of world
sugar trade is not either subsidized or protected in some way, a
market that is well enough structured that it can be managed in a
rational, thoughtful manner shouldn't be too much to ask for,"
Jenkins said.
202-479-0853;
Kim.Archer@dowjones.com
(END)
Dow Jones Newswires 23-02-01 |