A Spoonful of Sugar Makes the Medicine Go Down

The Wall Street Journal reported last night that the U.S. Department of Agriculture is on the brink of purchasing 400,000 tons of sugar to help stem the losses sugar processors face after borrowing $862 million under a government farm-support program from sugar. The program, begun last October, helped the industry finance operations, but bumper crops of sugar beets and sugar cane have lowered the world price of sugar to around $0.19 a pound, sharply lower than the $0.26 a pound in force about a year ago. Since October, sugar prices have fallen 18% according to the WSJ. U.S. sugar prices currently range around $0.21 a pound, higher than the global price due to the price support.

As part of the U.S. Farm Bill of 2008, any sugar forfeit to the USDA must be sold to ethanol producers who presumably would use the sugar to replace corn in their ethanol production. The USDA expects to lose $0.10 a pound as a result of the forced sale, leading to an overall cost of $80 million if all 400,000 tons are purchased. Because loans made under the government program can be repaid with sugar, not dollars, the cash loss could be even greater.

U.S. consumers likely will end up paying more for candy and other products that use sugar, even after supporting the sugar processors with the sweetheart loans.