MEXICAN SUGAR CHAMBER

MEXICAN SUGAR CHAMBER

August, 2013DYNAMICS OF AN OVERSUPPLIED MARKET

2Este documento es de carácter reservado y ha sido emitido por la Cámara Nacional de las Industrias Azucarera y Alcoholera (CNIAA) para fines de información a las personas entre quienes ha sido distribuido por la propia CNIAA, por lo que tiene el carácter de documento confidencial. En consecuencia este documento y su contenido no podrán ser copiados, distribuidos, reproducidos por cualquier medio, difundidos o citados, total o parcialmente, ni por sus destinatarios ni por terceras personas, como fuente de información o para cualquier otra finalidad, sin el consentimiento previo y por escrito de la CNIAA. Este documento podrá ser objeto de solicitudes de información pública de conformidad con lo dispuesto en las leyes de la materia y su contenido solamente podrá ser revelado por las autoridades a las que fue distribuido en versión pública de acuerdo con los requerimientos de la Ley Federal de Transparencia y Acceso a la Información, sin revelar datos personales o particulares. La violación a estas prohibiciones sujeta al infractor a las sanciones previstas en las leyes mexicanas.

INDEX

I. Mexican Sweeteners Market - Impact of NAFTA.

II. Mexican Sugar Production - Oversupply.III.Sugar Prices in Mexico - Pickets by

Cane Growers. IV.Mexican Sugar Exports.V. Dealing with current oversupply of

sugar.


I. MEXICAN SWEETENERS MARKET-

IMPACT OF NAFTA.


SWEETENERS CONSUMPTION IN MEXICO IS STRONG.

4,11

0

4,14

4

4,12

8 4,30

1 4,52

8

4,56

9 4,77

4

5,12

5

4,91

9 5,09

5

5,13

8 5,28

6

5,68

9

5,38

0

5,34

1

5,67

1

5,77

1

5,58

5

5,87

3 6,000

4,000

4,500

5,000

5,500

6,000

6,500

Total consumption in the Mexican market(Thousand metric tons)

Source: CNIAA

50% increase in 20 years.


MEXICO, WORLD LEADER IN SOFT DRINKS CONSUMPTION.

STRONG THREAT OF TAXES ON SOFT DRINKS IN MEXICO.

163

118 116

89

6556

0

20

40

60

80

100

120

140

160

180

Mexico USA Chile Brazil Colombia Peru

Per capita caloric soft drinks consumption by country

(liters)

Source: INTERNATIONAL Oxfam and the Mexican NGO Consumer’s Power

According to recent NGO and Health offensive:


Mexican cane sugar Industry

NAFTA INTEGRATION IN SWEETENERS.

High Fructose Corn Syrup

Sugar

American sweetener Industry


HFCS MARKET PENETRATION IN MEXICO.

-

1,000

2,000

3,000

4,000

5,000

6,000

1993/94 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Proy.

4,037 4,568 4,993 4,354 3,950 4,138 4,500

73

774 679 1,418

1,635 1,735 1,500

Mexican market: sugar and HFCS consumption (Thousand metric tons)

HFCS Sugar

2012/13 projection based on market share oct'12-may'13, according to CONADESUCA figures.Source: CNIAA

25%

75%

5,3415,671 5,771 5,585

5,873

4,11030%

70%

6,000


PERCAPITA CONSUMPTIONOF SUGAR IN MEXICO.

46.3

49.3 48.7

45.9

35.2

40.1

34.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

52.0

Source: CNIAA

(Kg)

Aggressive pricing by Sugar Mills in Mexican internal market, to recover market share vs HFCS.


II.MEXICAN SUGAR PRODUCTION - OVERSUPPLY.


UBICACIÓN DE LOS 54 INGENIOS AZUCAREROS MEXICANOS

El Higo

Panuco

Los Mochis

El Dorado

La Primavera

S. M. Naranjo

81

El Refugio

La Gloria.El Modelo

San PedroSan Cristóbal

CuatotolapanTres Valles

Mahuixtlan

C. MotzorongoConstancia

El Carmen

Providencia84

78

30San Miguelito

C. Progreso

PugaTala

Bellavista

El Molino

A. Saenz

Sn. Fco. Ameca

M. Ocampo

L. Cárdenas

Sta. Clara

PedernalesTamazula

Quesería

El Mante

A. L. Mateos

P. Machado

Pujiltic

Huixtla

Plan de San Luis

La Joya

Santa Rosalía

B. Juárez

Calipam

AtencingoE. Zapata

Casasano

Azsuremex

A. PopularPlan de Ayala

ESTADOS CON INGENIOS

ESTADOS SIN INGENIOS

José Ma. Morelos

San R. de Pucté

CLAVE INGENIOEl PotreroNuevo San FranciscoSan José de AbajoSan Nicolás

81

30

84

78

30

MEXICAN SUGAR PRODUCTION STRUCTURE.

457,000 direct jobs. 55 Sugar Mills:

35,994 Factory Workers. 170,003 Cane Growers,

who in turn employ:

146,975 Laborers. 68,775 Cutters. 35,714 Transporters.

11

MEXICAN SUGAR PRODUCTION.

2011/12 2012/13* Var. (%)

703,761 780,968 11%*/Preliminary

Harvested area(HA)

Cane per hectare

2011/12 2012/13* Var. (%)

65.85 78.68 19%*/Preliminary

(TON/HA)

Factory yield

2011/12 2012/13* Var. (%)

10.92 11.34 4%*/Preliminary

(%)

Extraordinary weather in 2012/13:

http://www.google.com.mx/url?sa=i&rct=j&q=ca%C3%B1a%20de%20azucar%20DIBUJO&source=images&cd=&cad=rja&docid=Lj730W_C0vNl3M&tbnid=eJ7PBCjANaer_M:&ved=0CAUQjRw&url=http://www.carcabin.com/azucar-y-cncer-hechos-reales/blogasesor.com*wp-content*uploads*2012*08*cancerazucar-290x170.jpg/&ei=AmjtUe3fFMO6qQGz7oDwBw&psig=AFQjCNG0d82Z18QcVz0kooWxb_jhnP_Klw&ust=1374599413605560



-

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

250,000

275,000

300,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

2012/13 cycle: 6,973 thousand metric tons.

AVERAGE (5 previous cycle): 5,108 thousandmetric tons.

37% higher than the previous five-year

production average.



-

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

250,000

275,000

300,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45

2012/13 cycle: 6,973 thousand metric tons.

2004/05 cycle 5,796 thousand metric tons.

20% higher than the Mexico� s record

harvest in 2004/05.


MEXICO- FROM DEFICIT TO SURPLUS IN SWEETENERS.

3,529

4,27

5

4,40

6

4,54

3

5,17

4

4,69

9

4,69

6 4,92

4

4,87

2

4,92

8

5,02

4

5,79

6

5,28

2

5,31

4 5,52

1

4,96

2

4,82

6 5,18

4

5,04

8

6,97

3

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000(Thousand metric tons)

Fuente: CNIAA

SweetenerConsumption

973 MT

SugarProduction


PRESENCE OF HCFS IN MEXICO INCREASES SUGAR SURPLUS DRAMATICALLY.

3,529

4,27

5

4,40

6

4,54

3

5,17

4

4,69

9

4,69

6 4,92

4

4,87

2

4,92

8

5,02

4

5,79

6

5,28

2

5,31

4 5,52

1

4,96

2

4,82

6 5,18

4

5,04

8

6,97

3

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000(Thousand metric tons)

Source: CNIAA

SugarProduction 2,473 MTSugar

Consumption


III. SUGAR PRICES IN MEXICO-PICKETS BY

CANE GROWERS.


PRICE INTERNAL MARKET = Official list price in public markets.

CANE PRICE IN MEXICO.

X% 30% of Mexican internal sales of sugar go to public markets (50

kg bag, Government standards and price monitoring). 70% of Mexican internal sales of sugar go to industry (price

unknown, price NOT considered for cane payments).

EXPORT PRICE = Raw sugar prices.Y% Contract 16 if exports to U.S. Contract 11 if exports to World market.

PICKETS MANIPULATE ACCESS TO PUBLIC MARKETS, AND THEREFORE ARTIFICIALLY RAISE OFFICIAL LIST PRICE FOR CANE PAYMENTS.

CANE PRICE IS 57% OF SUGAR PRICE, COMPOSED OF:


PICKETS ARTIFICIALLY RAISE LIST PRICES IN GOVERNMENT - MONITORED PUBLIC MARKETS.

$350

$450

$550

$650

$750

$850

$950

$1,050

$1,150

$1,250

$1,350

Mexico and U.S.: Behaviour of prices under NAFTA FOB Sugar mill price: Mexico (Estandar and refined) and U.S. (C-16 and Sugar beet

Midwest)(Dollars per metric ton)

Midwest C16Estandar Refined

Sources:Mexico-Standard and Refined: SNIIM.-SE and INEGI. US-C16: ICE-IntercontinentalExchange and Midwest: Milling & Banking news.

2011/12 cycle

Pickets.

2011/12 cycle


$350

$450

$550

$650

$750

$850

$950

Mexico and U.S.: Behaviour of prices under NAFTA FOB Sugar mill price: Mexico (Estandar and refined) and U.S. (C-16 and Sugar beet

Midwest)(Dollars per metric ton)

Midwest C16Estandar Refined

Sources:Mexico-Standard and Refined: SNIIM.-SE and INEGI. US-C16: ICE-IntercontinentalExchange and Midwest: Milling & Banking news.

Pickets.

2011/12 cycle

PICKETS ARTIFICIALLY RAISE LIST PRICES IN GOVERNMENT - MONITORED PUBLIC MARKETS.


OFFICIAL SUGAR CANE PRICES PER CYCLE, AS PUBLISHED BY GOVERNMENT EACH OCTOBER.

There may not be enough income for Farmers to fertilize and prepare land, nor to pay Laborers, Cutters and Transporters.

5,996.13 6,579.21

10,222.26 10,368.58 10,617.72

6,900.00 6,700.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

10,000.00

11,000.00

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2012/13 Proy.

Sugar Cane Prices (Pesos/Ton)

drop of sugar cane prices:2011/2012 vs 2012/2013: 35%2011/2012 vs adjustment: 37%


Due to drought/weather and low farm income, Mexican sugar production could be:

5.8 - 6.3 million tons in 2013/14.Lower? in 2014/15.

Mexican Government hesitant to support an oversupply situation.

Any Farm support for cane analysis would need clear strategy to prevent prolongued oversupply.

SERIOUS FARM INCOME SITUATION.


IV. MEXICAN SUGAR EXPORTS.


MEXICAN SUGAR EXPORTS.

- 13 14 25 28 28 114 147 9 10

163

644

98

545

1,011

696

1,370

837

1,756

- - - - - -- -

- -

-

-

-

-

19

5

18

0.2

191

- 13 14 25 28 28 114 147

9 10 163

644

98

545

1,030

701

1,388

837

1,948

-

500

1,000

1,500

2,000

Mexico: sugar exports (Thousand metric tons)

To USA To rest of world

Since January 2008, the sugar market has opened between Mexico and USA

Source: CNIAA


MONTHLY MEXICAN SUGAR EXPORTS.

Oct'12 Nov Dec Jan'13 Feb Mar Apr May Jun Jul Aug Sep Oct NovTotal 99,029 46,417 74,234 103,269 135,448 202,040 195,872 217,847 197,584 228,517 194,823 223,042 241,000 230,584To Rest of World 53 50 67 109 2,972 31,555 17,356 22,091 21,359 27,231 22,000 17,280 16,000 13,366To U.S. 98,975 46,367 74,167 103,160 132,475 170,486 178,517 195,756 176,226 201,286 172,823 205,762 225,000 217,218

-

50,000

100,000

150,000

200,000

250,000

Mexican Monthly Sugar Exports (Metric Tons)

Source: Mexican Customs (AGA.-SAT)

Expected


A)Nafta Market: Only Mexico and US Sugar. NAFTA Prices.

B)Non-NAFTA Market: Sugar from many Countries. World Prices.

C)1.5 Million Tons Of Sugar Sales In US Territory are “Non-NAFTA Market”: Competition vs 40 Countries.

MEXICAN SUGAR EXPORTS COMPETE IN.


B. Non-NAFTA Sugar Market: Competition vs. Many Countries.Examples: U.S. Refineries with WTO/FTA/Sugar Re-Export Program. Exports to other countries.

NAFTA & NON NAFTA MARKETS.

A. NAFTA Sugar Market: U.S. and Mexican sugar only. Examples: Wal-Mart, Candy

markets, soft drinks.

U.S. Refi

neries

1.5 million tons

33,000

24,800 22,269

18,900

12,087

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Burkina Faso Switzerland Canada Mauritania Colombia


MEXICO EXPORTS TO OTHERS COUNTRIES.

Mexican exports to other Countries (oct, 2012-Jul 27,2013).


“White” (99.9) sugar not increasing substantially. “Estandar” (99.4 - 99.8) sugar makes up the bulk of Mexican increase in monthly

exports.

MEXICAN INCREASE IN EXPORTS TO THE U.S. IS MOSTLY “ESTANDAR” SUGAR SENT TO U.S. REFINERS.

Oct'12 Nov Dec Jan'13 Feb Mar Apr May JunTotal 98,975 46,367 74,167 103,160 132,475 170,486 178,517 195,756 176,226Estandar 41,624 15,681 17,114 73,243 97,116 116,247 135,770 145,120 119,737Refined 57,351 30,686 57,053 29,917 35,359 54,239 42,747 50,636 56,488

-

25,000

50,000

75,000

100,000

125,000

150,000Mexican Monthly Sugar Exports to U.S.

(Metric Tons) Source: Mexican Customs (AGA.-SAT)


MEXICO IS SUBSTITUTING THIRD COUNTRY RAW SUGAR IMPORTS INTO THE U.S.

87,2

08

64,7

27

62,7

63

69,6

28 98,7

14

104,

352

126,

951

82,5

56

56,4

86

88,5

66

65,5

82

64,3

26 107,

042

63,4

59

83,6

26

102,

818

116,

172

149,

443

199,

074

217,

769

212,

000

307,

950

103,

392

217,

592

151,

795

122,

094

160,

143

164,

880

227,

106

266,

860

138,

024

173,

378

289,

879

58,3

94 186,

444

161,

852

66,9

64

131,

682

35,4

04

31,8

68

98,1

20

34,4

22

395,158

168,119

280,355

221,423 220,808

264,495

291,831309,662

323,346

226,590238,960

354,205

165,436

249,903 245,478

169,782

247,854

184,847

230,942

315,889

246,422

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Oct'11 Nov Dec Jan'12 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan'13 Feb Mar Apr May Jun

Sugar Imports into The U.S.(Metric tons, Raw Value)

From Mexico From Rest of World

Source: USDA

2011/2012 cycle 2012/2013 cycle


V. DEALING WITH CURRENT

OVERSUPPLY OF SUGAR.


1. Timely estimate of Surplus. Consolidate “NON – NAFTA MARKET” Exports.

2. Defensive attitude vs. HFCS in Mexican internal market.

3. Goverment- Led initiatives. Ethanol? Farm Support? Conditions attached?

MEXICAN SUGAR CHAMBER CONSIDERATIONS.

Humberto JassoGeneral Director

Mexican Sugar Chamber

THANKS…

MEXICAN SUGAR CHAMBER

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