Domestic Sugar

1
Domestic Sugar Corn SweetenerOutlookPresented
BySteve Vuilleumier,McKeany-Flavell Co.To
The International Sweetener ColloquiumFebruary
6, 2006Ft. Lauderdale, Florida
2
Domestic SugarSupply/Demand Outlook
3
Todays sugar market is strong because

• Last spring fewer acres were planted and Red
  River Valley experienced adverse growing
  conditions.
• Hurricanes ravaged both the 2004/05 and 2005/06
  cane crops in Louisiana and Florida. Blocked
  stocks were used to fulfill the 2004/05 cane
  allotment, leaving inventory levels low.
• 2005/06 cane crop allocation deficits were
  reassigned to imports.
• Merger of Monitor and Michigan Sugar further
  consolidated the industry.
• Plant closures of two beet processing facilities
  (one by Amalgamated and one by Michigan Sugar).

4
The factors which helped bring the market to
where it is today

• Union strike at Dominos Yonkers facility reduced
  shipments (settled in June 2005).
• Domino Foods bought CH Sugar, giving Domino 65
  percent of all cane refining capacity.
• Southern Minnesota Beet Sugar Co-operative bought
  Imperials two remaining California beet
  facilities.
• Hurricanes Katrina and Rita forced closure of
  Dominos Chalmette refinery for over three months
  and Imperials Gramercy plant for two weeks.
• Sugar demand growth has resumed with the decline
  in low-carb diets such as Atkins and South Beach.

5
U.S. Sugar Acreage and Production
PIK program 2001-2002

• Record wet season and poor storage conditions
  have led to lower beet sugar production
  expectations for 2005/06.
• 2006/07 Expect cane acreage reductions in
  Florida and Louisiana due to hurricane damage,
  with yields recovering somewhat.
• 2006/07 sugar beet acreage may increase 2 3.

• Prior to the 2002/03 season, production was
  strongly correlated with acreage.
• Sugar beet harvested acreage down 2.5 in 2004/05
  and off another 5.8 in 2005/06.
• Cane harvested acreage down 4.7 in 2004/05 and
  1.6 in 2005/06.

Estimate Source Commodity Information/USDA
6
2005/06 WTO Refined and Raw Sugar TRQ Increase as
of February 2, 2006

• Refined TRQ increased from 279,013 STRV to
  529,013 STRV.
• Additional quantity of 250,000 tons will be
  allocated by USTR by country based on refined
  sugar availability.
• Raw cane imports increased by 250,000 tons.
• Raw cane sugar TRQ is now 1,901,497 STRV.
• - CQEs will be required
• - USTR will survey all countries and reassign
  from countries that cannot
  fill their TRQs
• - The additional 250,000 tons must enter the
  U.S. by July 1, 2006

7
USDA Calculation of Marketing Allotmentsas of
February 2, 2006
2005/06 Crop Year
(STRV)
Effective beet allotment is 4,952,725 STRV due
to PNSC allotment of 129,000 tons held in reserve.
Source McKeany-Flavell/USDA
8
Description of Cane Shortfall
(ST Raw Value)
CCC expects all domestic sugarbeet and sugarcane
processors to market 100 of their sugar supply.
Source McKeany-Flavell/USDA
9
Estimated U.S. Domestic Sugar Supply / Demand
Thousand Short Tons, Raw Value
1. Projected 2. Sugar containing syrups and
Mexican sugar, but excluding re-export sugar
3. Domestic Food Use 4. Beet processor
estimated sales with allowance for pipeline
inventory 5. Estimated net import quota needs is
food demand figure less other supply
Source USDA McKeany-Flavell
10
FY 2005/06 Ending Stocks EstimateShort Tons Raw
Value

• Pipeline beet refined sugar (8 of 4,435,000 tons
  of production)
• Cane processor and cane refiner raw ending stocks
• Cane refiner refined stocks (includes
  distributors and customers)
• Potential Ending Stocks

• 355,000 STRV
• 265,000 STRV
• 700,000 STRV
• 1,320,000 STRV
• 500,000 STRV
• 1,820,000 STRV

It is likely some of this tonnage will be
consumed and not end up as ending stocks
11
2005/06 Beet Processor Allotments
Source USDA/McKeany-Flavell
12
U.S. Sugar Industry December 2005
Leased from American Crystal
Figures may not add to 100 percent due to rounding
Source Trade Sources
13
Possible U.S. Sugar Industry January 2008
Leased from American Crystal
Source Trade Sources
14
Dietary Changes

• Contributing factors
• Low-carb fades as Natural becomes the new buzz
  word and sugar is included.
• According to Information Resources, Inc, 43 of
  U.S. consumers place taste above health benefits
  in their food purchasing decisions.
• Improved economy GDP estimated up 4.0 through
  December 2005.
• Increased usage in beverage category (sales of
  energy drinks up 62 in 2004)

U.S. Sugar Deliveries Percent Change
Source USDA McKeany-Flavell
U.S. Sugar Deliveries by Category
The Diet vs. Exercise Debate Answer Balanced
approach USDA introduces the new Health Pyramid,
recommending for the first time 30 to 90 minutes
of daily exercise along with portion control.
Calories are crucial. Must balance exercise and
foods we eat.
Million Short tons, refined value
15
Market Concerns

• Demand will drive sugar market the question is
  whose sugar will we consume
• Importation of sugar-containing products
  continues to rise close to 50,000 75,000 tons
  per year
• Extremely tight cane refining capacity could
  force Government to allow more imported refined
  sugar to meet growing US demand

Mexican Tier II Duty
US cents per lb
Mexico sits in a net surplus position, as Tier II
duty falls could provide opportunity for
increased amounts of sugar entering US market
Sources USDA and McKeany-Flavell Estimates
16
U.S. Refined Raw Sugar PricesSeptember 1999
December 2005
Refined beet sugar hits .19/lb., creating
forfeiture to USDA
Improved demand, tightness in supply drive prices
higher
OAQ of 8.825 million STRV announced Sept. 30th,
2005
Cents/lb
USDA marketing allocations announced at a
conservative 7.7 million STRV
Sources Commodity Information NYBOT, Milling
Baking
17
Mexican Sugar Industry and Outlook
18
Sugarcane Growing Regions In Mexico
19
Sugar Production Harvested Area
Production (Million MT)
Thousand Hectares Harvested
Estimate
Source C.N.I.A.A.
20
2004/05 Sugar Production By Grupo
(Thousand Metric Tons) Physical Value
FEESA
Beta San Miguel
Zucarmex
GAM
Saenz
Piasa
AGA
Independents
Porres
Machado II
Seoane
Garcia Gonzales
Jimenez Sainz
Machado I
Source C.N.I.A.A.
21
MEXICO -
Estimated Sugar Production And Domestic
Consumption
Million Metric Tons (Physical)
Source Trade Sources
22
2005/06 EstimatedMexican Sugar Consumption
4.590 MILLION METRIC TONS
Source C.N.I.A.A.
23
MEXICO -
ESTIMATED SUGAR SITUATION
Thousand MT (Physical)
Estimate
Includes both Mexican and U.S. sugar for
PITEX/Maquiladora programs. Imports
from U.S. used for PITEX are included in imports.
Source Mexican Trade Sources
24
MEXICO -
Estimated HFCS Production Capacity and Domestic
Consumption
Million Pounds Dry
Calendar Year Estimates
Source Mexican Trade Sources
25
MEXICO - Estimated HFCS Imports
Thousand Metric Tons
Source Mexican Trade Sources and McKeany-Flavell
26
Corn Sweetener Outlook
27
Key Factors that Impacted HFCS Negotiations for
2006

• Market Consolidation From 8 to 5 suppliers 3
  make up 77 of HFCS capacity.
• Grind Diversification - Starch slurry is being
  used to produce non-sweetener products, which is
  directly tightening corn sweetener availability
  in the market place.
• Sweetener Capacity - Capacity is still available
  to make more corn-based sweeteners in the U.S.
  market. However, grind utilization will limit
  sweetener production (product production will be
  driven by profitability of products). At present,
  HFCS and corn syrup are at the bottom end of the
  chain. Grind capacity is approaching 95
  utilization.
• Ethanol Demand for corn-based ethanol continues
  to expand, creating potentially greater
  profitability and continued expansion by the corn
  wet milling industry, further removing HFCS
  feedstock (starch slurry) in 2006 (570 million
  lbs wet) and 2007 (another 1.6 billion lbs wet).

28
Listing of Corn Sweetener Industry Participants
29
Grind Diversification

• Corn refining industry has responded to slowing
  HFCS growth by
• Diversifying grind capacity to other products
• Reducing total capacity (i.e. shutting down
  plants)
• Consolidating the industry
• About 2.0 billion lbs (wet basis) of HFCS grind
  has been reallocated to other products in the
  U.S. since 2002. Another 2.2 billion lbs (wet
  basis) of HFCS could be diverted to ethanol in
  2006 and 2007.
• Since 2002, the following companies have reduced
  or shifted starch grind to higher-margin products
  such as ethanol Tate Lyle, Grain Processing,
  ADM, and Cargill.
• Ethanol, specialty starch, dextrose feedstock,
  crystalline fructose, and bio-chemicals
  capacities (fermentation) have increased
  especially for plastics and polyols.

Source McKeany-Flavell
30
Theoretical HFCS Production Capacity vs. Demand
North America -
Cargill shuts down Dayton, OH HFCS lines
Cargill shuts down Decatur, AL
Expansion for Mexico
TOTAL CAPACITY
Cargill shuts down Dimmitt, TX
TOTAL DEMAND
Dayton, OH re-opening?
HFCS 55 CAPACITY
BILLION POUNDS DRY
HFCS 55 DEMAND
HFCS 42 CAPACITY
HFCS 42 DEMAND

• Includes Canada and Mexico. Assumed capacity
  expansion 1 annually through 2003 due to
  de-bottlenecking.

2006 Estimated
Source McKeany-Flavell
31
Future Constraints on HFCS Capacity

• 2006 Tate Lyle building out additional 34
  million gallons of ethanol capacity at Loudon,
  Tenn. should remove close to 570 million lbs
  (wet basis) of HFCS capacity.
• 2007 Cargill plans to expand ethanol production
  at Blair, Neb. by 110 million gallons. Upon
  completion, this could remove close to 1.6
  billion lbs (wet basis) of HFCS production from
  the market if the ethanol expansion occurs at the
  wet mill. If a new ethanol dry mill is built,
  HFCS would remain unaffected.

32
North American HFCS Demand
Billion Pounds Dry
Processed Foods 8
20.17
19.86
19.19
19.67
19.56
19.61
18.99
18.98
Canning 6
Dairy 7
Baking / Cereal 6
Confections 1
Alcoholic Beverages 2
Beverage 70
Estimate
Source McKeany-Flavell
33
Current State of the Ethanol Industry

• Current ethanol capacity 94 plants, 4.3 billion
  gallons/year
• Total capacity under construction 1.5 billion
  gallons/year
• 31 new ethanol plants and 9 expansion projects
  underway
• 1.4 billion bushels of corn are currently used in
  producing ethanol (about 12 of U.S. corn crop)
• 2.5 billion bushels of corn are expected to be
  used by 2010 (over 20 of an 11.5 billion-bushel
  crop)

Sources Renewable Fuels Association, trade
sources
34
Corn used for ethanol production
Millions of bushels
Sources Renewable Fuels Association, trade
sources
35
Ethanol Supply/Demand/Capacity Utilization
(Billion Gallons)
Assumes Renewable Fuels Standard of 7.5 billion
gallons by 2012
Source McKeany-Flavell estimates
We expect at least 7.0 billion gallons going to
ethanol and 0.5 billion to biodiesel
36
Ethanol Prices, Production Costs, and
Profitability

• Federal excise tax exemption was 0.54 per gallon
  from 1993-2001, 0.53 per gallon in 2002, 0.52
  per gallon from 2003-04, and 0.51 per gallon
  from 2005-2010
• 2004 average dry mill ethanol production cost
  includes Feedstock Costs 0.50/gallon, Operating
  Costs 0.44/gallon, and 0.10/gallon depreciation
  /gallon

Source OxyFuel News, CBOT
37
Ethanol vs. Unleaded Gasoline Pricing
per Gallon
38
Key Energy Factors

• Energy impact to manufacturers in the U.S. and
  Canada has increased by tens of millions of
  dollars.
• Natural gas prices are at 4 to 5 times their
  historical norms.
• Natural gas costs are forecast to remain volatile
  for the foreseeable future.
• Crude oil costs have more than doubled in the
  past three years, impacting fuel costs and the
  costs of chemicals and enzymes.
• The era of cheap energy / electricity appears to
  be over.