Benzinga - Not everything is sweet for the makers of candy canes, peanut brittle and lollipops.
What Happened: Candy companies are facing higher costs and, in several instances, reduced production of sweets due to tight sugar supplies, the Wall Street Journal reported.
Candy producers attribute the issue to U.S. agriculture policy mandating that at least 85% of U.S. sugar purchases must be sourced from domestic processors. The requirement has led to limited supplies and elevated prices during periods of high demand.
On the other hand, sugar farmers and processors argue that this policy has guaranteed sufficient supplies and safeguards farmers' livelihoods. They contend that U.S. sugar producers compete with foreign competitors who offer subsidized sugar at artificially low prices.
In May, U.S. raw cane sugar prices surged to 42.56 cents per pound, the highest level since January 2011, the U.S. Department of Agriculture (USDA) reported. Meanwhile, the Wall Street Journal reported that refined beet sugar in the Midwest rose to 62 cents per pound in the same period.
According to Rabobank, a prominent agricultural lender, refined beet sugar prices reached historically high levels in 2022. These soaring prices are attributed to concerns around the U.S. and Mexico's inability to meet export quotas. The USDA notes that Mexico is also grappling with record sugar prices.
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In April, Hershey Co (NYSE: HSY) and MONDELEZ INTERNATIONAL INC (NASDAQ: MDLZ), the leading manufacturers of popular sweets and snacks like Reese's Peanut Butter Cups and Sour Patch Kids, acknowledged the elevated sugar prices during their company earnings calls in April. The soaring costs contributed to the overall rise in their expenses.
The USDA predicts that tight supplies worldwide and weather concerns will keep U.S. sugar prices high. Rabobank pointed out that buyers have already started reserving sugar in advance, potentially sustaining elevated prices.
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According to the USDA, the overall U.S. sugar supply is expected to decrease by 2.3% for the upcoming crop year.
Acquiring sugar supply, especially beet crops, is proving challenging, as most of the 2023-to-2024 sugar beet crop has already been sold out through early contracts. The USDA reported that beet sugar accounts for approximately 56% of U.S. production, with the remainder being cane sugar.
According to the Wall Street Journal the National Confectioners Association, which represents over 500 sugar-using companies, brokers and suppliers, is currently advocating for sugar program modifications. Christopher Gindlesperger, the group's senior vice president of public affairs, stated that these changes would augment supply during periods of high demand.
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