U.S. sharpening tools to dig out of impending sugar mountain
* USDA faces large cost for sugar subsidies
* USDA likely to sell surplus sugar to make ethanol
* Other options may be costly
By Charles Abbott
WASHINGTON, March 20 (Reuters) - The U.S. government is readying a tool created during last decade's biofuels craze - a never-used program to sell sugar at a loss to ethanol makers - as a way to whittle a looming sugar surplus down to an affordable size.
The sugar-for-ethanol program could be a lower-cost way for the Agriculture Department to meet its obligation, by law, to assure a minimum price for U.S.-grown sugar. Due to large crops worldwide, New York futures prices are below the federal guarantee of 20.94 cents per lb.
If markets remain weak, sugar processors could forfeit to USDA tens of thousands, or even hundreds of thousands, of tons of sugar used as collateral on USDA price-guarantee loans. In the last major glut, forfeitures cost USDA $465 million in fiscal 2000 on a program that is supposed to run at no net cost.
Other options to handle the surplus are on the table, including a buy-back from foreign nations of the right to ship sugar to the United States, payments to ship sugar to other nations and rules changes to curb the flow of "re-export" sugar that is processed in the United States, analysts said.
Some $864 million in loans was in danger of forfeiture by one estimate. The sugar supply at the end of this marketing year is forecast for 2.4 million tons by USDA. At 20 percent of annual use, it would be the largest carryover since 2001. Continued...