Agricultural Outlook Forum Presented: February 23-24, 2012 U.S. Department of Agriculture Outlook For Mexico As A Supplier of Sugar To The U.S. Oscar Cruz-Barney
OUTLOOK FOR MEXICO AS A SUPPLIER OF SUGAR TO THE U.S. FEBRERO, 2012
INDEX I. Sugar Outlook II. III. Mexico leading sugar producer with a large Sweetener Market North American Regional Market a Reality: a) Mexican Sweetener Market b) U.S. Sweetener Market c) U.S. and Mexico Sweetener Market IV. Mexico: Sugar Balance 2010/11 marketing year, and Projection 2011/12 V. Striving for Competitiveness, changes in the Mexican Sugar Industry VI. A sugar policy for México 2
I. Sugar Outlook DEMAND GROWTH - Global sugar demand will increase to 257mmtrv by 2030. 90mmtrv - increase - Growth is driven primarily by the emerging economies. - Growth in consumption is around 1.3% higher than the growth in population and reflects that consumption per capita rises as countries develop. SUPPLY GROWTH - Over the last 20 years sugar production has risen by 44% to 157mmtrv - The sugar industry is becoming quite concentrated; 10 biggest suppliers account for 60% of production and exports. - Brazil alone accounts for 60% of global exports. Dependence on Brazilian sugar will continue to grow. - Improvements in productivity could result in growth of 45mmtrv and there will be a need on the supply side of 45mmtrv primarily from Brazil. - Sugar consumer will need to adjust to higher prices.
I. Sugar Outlook Brazilian Case - The operational cost of sugar production is forecast to rise to over 35c/lb over the next 20 years. An increase of mare than 85%. - Agricultural costs biggest cost component (60% of total) will double in the next 20 years as a result of higher land, input and labor costs. - Logistic cost will also double in the next 20 years. CAPEX - Total additional land requirements to meet the growth in global sugar and domestic ethanol demand is 9.17 m hectares. Land under cane cultivation will double. - Factory capacity will have to be upgraded and in addition, a total of 173 new Greenfield units will be required. - 1.4 bn tons of additional cane crushed will require an investment of approximately US$340bn over this period. - There is an optimistic growth target of 2.2bn tons of cane dependant on the ethanol market that would require US$490bn in CAPEX.
1,418 1,635 1,717 3,838 4,025 4,068 4,214 4,535 4,578 4,920 4,897 4,823 5,032 4,672 4,568 4,958 4,354 3,950 3,904 4,301 4,528 4,569 4,774 5,125 4,919 5,095 5,138 5,286 5,689 5,380 5,341 5,622 5,772 5,585 5,621 II. Mexico leading sugar producer with a large Sweetener Market 40,502 Mexico: World's Sixth Leading Sugar Producer Cycle 2010/2011 Metric tons, raw value Mexico: World's Ninth Leading Sugar Consumer Cycle 2010/2011 Metric tons, raw value 25,540 26,522 Total World Production: 167,738 16,140 13,200 9,950 Total World Comsuption: 167,635 11,005 7,949 7,113 4,971 4,083 3,967 3,913 3,527 5,978 5,543 4,348 3,516 3,497 3,000 Brazil India China Thailand USA Mexico Australia France Pakistan Germany Source: CZARNIIKOW SUGAR REVIEW, August 2011. India China Brazil USA Russia Indonesia Pakistan Germany Mexico Thailand Source: CZARNIIKOW SUGAR REVIEW, August 2011. 7,000 Mexican market: Sugar and HFCS Consumption Thousand Metric Tons 6,000 5,000 4,000 3,000 2,000 1,000-462 503 501 560 590 341 176 241 463 657 708 774 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 Proj. 11/12 665 5 HFCS, dry weight Sugar
3,266 3,910 3,559 3,529 4,048 3,984 3,838 4,025 4,068 3,950 3,904 4,214 4,034 3,951 4,077 4,037 4,535 4,354 4,578 4,275 4,406 4,920 4,897 4,823 4,672 4,568 4,543 5,032 4,958 4,699 4,696 4,924 4,872 4,928 5,174 5,024 5,796 4,962 4,826 5,282 5,314 5,184 5,099 5,521 6,000 II. Mexico leading sugar producer with a large Sweetener Market Mexican Sugar: Production and Consumption Thousand, Metrics Tons 5,500 5,000 4,500 4,000 3,500 3,000 Production Consumption 1,600 1,518 México: Export - Import 1,499 1,400 1,200 1,111 1,281 1,338 1,000 800 600 400 607 837 579 477 552 947 712 751 610 Source: CNIAA 200-184 56 181 126 47 - - 167 13 151 290 155 91 0 - - - - - 70 Exports Imports 290 93 174 - - 1-219 107 6
III. North American Regional Market a Reality US SWEETENER INDUSTRY North American Sweetener market fully integrated. Since the market opened: Mexico has exported more than 2,9 millions sugar tons to U.S. Mexico has imported around 2,6 millions tons dry of HFCS from U.S. Good Coordination and cooperation between Mexican and U.S. Governments regarding sweeteners: Mochis La Primavera El Dorado A. Saenz MEXICAN SUGAR INDUSTRY The Administration in each country sugar program consistent with NAFTA obligations. El Mante Puga El Molino Bellavista Sn. Fco. Ameca M. Ocampo José Ma. Mor. S. M. Naranjo El Higo 04 Zapoapita Tala 63 Plan de San Luis Santa Clara Independencia Tamazula Atencingo Quesería Pedernales Casasano Calipam Sta. Rosalía La Joya. Mexico is a reliable supplier in the integrated North American Regional Market. L. Cárdenas E. Zapata P. Machado B. Juárez El Refugio Azsuremex A. L. Mateos Pujiltic 7 Huixtla
22,218 22,218 34,794 34,794 72,704 72,704 232,886 5,915 96,061 96,061 341,934 144,558 82,679 175,566 241,074 306,866 303,111 304,476 340,484 357,215 258,758 169,651 293,786 341,437 235,416 144,558 391,042 407,075 442,551 361,667 462,332 503,015 463,120 466,795 500,507 590,100 467,000 560,481 467,630 663,119 713,940 784,485 664,778 954,590 1,192,261 1,417,710 1,635,114 III. North American Regional Market a Reality a) Mexican Sweetener Market Mexico: Production, imports and national consumption of HFCS, Marketing years 1991/92 to 2011/12 (projected) (Metric Tons, dry weight) 2,000,000 1,800,000 1,717,000 1,600,000 1,400,000 1,200,000 20% tax to soft drinks sweetened with sweeteners different to cane sugar. 1,275,000 1,000,000 800,000 600,000 400,000 200,000 0 Period without domestic production 0 0 0 0 0 168,546 278,935 Antidumping investigation against HFCS 224,080 196,030 219,997 5,658 349,423 272,077 118,207 Substitution of sugar due to lower HFCS prices Domestic Production Imports National Consumption Source: CNIAA 8
III. North American Regional Market a Reality a) Mexican Sweetener Market HFCS Imports and Production, cycles 2009/2010, 2010/2011 and 2011/12 Metric tons, dry weight In the cycle 2010/2011 Mexico imported 1,192,261 metric tons dry weight, 22% up that in the same period last cycle. In this cycle 2011/2012 will remain the same levels of imports. 1,417,710 Metric tons 975,034 Domestic Consumption 1,635,114 Metric tons Domestic Consumption 1,192,261 1,275,000 463,120 466,795 467,000 09/10 10/11 Proj. 11/12 1,717,000 Metric tons Imports Production The production estimated of HFCS in cycle 2011/2012, will increase less 1%. 9
96,124 97,879 92,761 95,596 108,644 123,239 130,328 121,838 113,526 108,028 119,152 120,651 114,456 125,905 123,239 142,128 143,011 133,939 153,934 144,640 136,931 136,099 130,328 121,838 113,526 128,262 157,882 151,740 144,290 136,741 163,076 157,417 III. North American Regional Market a Reality a) Mexican Sweetener Market HFCS consumption, from Oct-09 to Jan-12 Metric tons, dry weight 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - Source: CNIAA 10
III. North American Regional Market a Reality b) USA Sweetener Market 16,500 16,000 15,500 15,000 14,500 14,000 13,500 13,000 12,500 15,349 15,314 14,037 U.S and Mexico Sugar: Combined Production plus Minimum of U.S. Imports and combined Consumption Thousand Metric Tons, raw value 14,985 14,271 13,113 15,278 14,909 13,699 15,703 15,854 15,412 15,326 15,586 15,633 14,025 14,078 13,045 15,755 15,324 14,131 15,794 15,414 14,059 16,048 14,248 12,841 15,977 15,633 13,126 Combined Consumption 15,772 15,191 Combined Production + Imports 13,383 Combined Production 15,754 15,342 13,600 12,000 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 Proj. 11/12 Sources: U.S., USDA and México,CONADESUCA Source: USDA, 2010/2011 forecast 11
Equivalent in million short tons, raw value III. North American Regional Market a Reality b) USA Sweetener Market 10.1 9.9 9.7 9.5 9.3 9.1 8.9 8.7 8.5 8.3 8.1 7.9 7.7 7.5 From its peak in 2002, total HFCS domestic demand through 2011 fell 18.8 percent HFCS domestic demand Fiscal Year Source: USDA 12
III. North American Regional Market a Reality c) U.S. and Mexico Sweetener Market 1000.00 México and U.S.: Behaviour of prices under NAFTA FOB Sugar mill price Oct'09 - Feb'12: México (SNIIM satandard and refined) and U.S. (C-16 and Sugar Beet Midwest) (Equivalence in mexican for 50 Kg bag) 950.00 900.00 850.00 800.00 750.00 700.00 650.00 600.00 550.00 500.00 450.00 400.00 350.00 300.00 Ciomercial Year 09/10 Comercial Year 10/11 C. Year 11/12 Midwest Beet EUA, 726.78 Price SNIIM Refined Sugar, 583.86 Price SNIIM Estándar Sugar, 540.21 Price C-16 EUA, 460.25 Source: Sugar Beet Midwest Milling and Baking News C-16 ICE (IntercontinentalExchange): https://www.theice.coml and Sugar Mexican Prices standard and refined SNIIM www.economia-sniim.gob.mx 13
IV. Mexico: Sweeteners Balance Estimated Sweetener Balance (thousands of metric tons.) Commercial year Concept 2009/2010 2010/11 2011/12 (Estimate) Begining Stocks (sugar) 588 918 760 Sugar Production 4,826 5,184 5,099 Import quota 610 107 219 HFCS production 463 467 467 HFCS imports 975 1,192 1,275 Total Sweeteners Supply 7,462 7,868 7,820 Sugar Exports 751 1,499 1,338 NAFTA 664 1,370 1,193 World Market 5 18 21 IMMEX 82 111 124 HFCS exports 20 24 25 Total Sugar Consumption 4,354 3,950 3,904 Sugar Mills Domestic Sales 3,744 3,843 3,685 Import Consumption 610 107 219 HFCS Consumption 1,418 1,635 1,717 Total Sweeteners Demand 6,544 7,108 6,983 Sugar Ending Stocks 918 760 836 Strategic Reserve Sweeteners Consumption = Domestic Sugar sales plus sugar import and 5,772 5,585 5,620 HFCS Consumption Source: CNIAA 14
Prices V Striving for Competitiveness, changes in the Mexican Sugar Industry Before High volatility Now NAFTA market opened since January 2008 Sugar prices in line with US prices Effective price floor based on the US Farm Bill Expected stability in prices going forward Demand Sugarcane price Land Energy Internal demand and insignificant exports to the U.S. Exports to the world market Limited use of HSCF Annual negotiations to determine price Based on past price differential Governmental referee between parties No agreements to incentivize vertical integration into sugarcane land Ambiguity in land ownership/leasing No alternative energy generation allowed for sale to third parties Unlimited access to US market Increased usage of HSCF Investments in higher production capacity in mills and fields Price based on current year sugar market prices Aligned interests between growers & producers Well defined and transparent formula Agreement with government and sugarcane growers creates incentives to invest in land Sugarcane land projects increase mills capacity utilization Land operation clearly stated in agreements with sugarcane growers Sugarcane considered renewal and intermittent source Alternative energy allowed through cogeneration For auto consumption and sale to third parties through CFE grid Clear rules for transmission costs Ethanol Bio Energy Law in place; mid to long term reality Labor Inflexible labor contracts 70 strikes in 80 years Flexible labor contract New labor relationship in place 15
VI A sugar policy for México Date of publication 06-agu-09 07-sep-09 18-sep-09 09-feb-10 07-oct-10 29-jun-11 20-oct-11 Total Total Total Validity of the quota 31-dec-09 31-dec-09 31-dec-09 30-jun-10 15-apr-11 31-dec-11 31-jan-12 Allocation scheme Public Bid Public Bid Direct allocation Public Bid Public Bid Public Bid Public Bid Posted amount ( TM ) 393,000 207,000 300,000 900,000 250,000 100,000 350,000 150,000 150,000 300,000 Assigned amount ( TM ) 550,000 186,478 100,000 286,478 105,800 150,000 255,800 % of allocation 61% 75% 100% 82% 71% 100% 85% Imported volume 395,489 185,359 68,778 254,137 84,971 150,000 234,971 % import 44% 74% 69% 73% 57% 100% 78% Weighted cost of quota 1,467.34 806.00 530.78 Total imported sugar 884,597 16