The following article is from the Wall Street Journal:

By LESLIE JOSEPHS

NEW YORK—Bad weather on both sides of the U.S. border could crimp the country’s sugar supply this year, driving up prices for the sweetener.

A drought in Mexico, which supplies close to half of the United States’ imported sugar, is expected to clip output for the 2011-12 sugarcane harvest.

A scarcity of sugar could contribute to rising food prices, as the sweetener is commonly found in many of the foods Americans eat. The U.S. Department of Labor’s food index has risen 3.5{dfeadfe70caf58f453a47791a362966239aaa64624c42b982d70b175f7e3dda2} in the 12 months ended May 30, and organizations such as the United Nations’ Food and Agriculture Organization have predicted global food prices will continue to soar as demand for grains, meat and other staples outstrips supplies.

Flooding caused by snowmelt and a rainy spring in the Midwest delayed planting of sugar beets, the source of more than half of domestic sugar production in the U.S. The shorter growing season has put in doubt just how much sugar the beets will provide when they are harvested in the autumn.

The supply situation became more clouded last week, when the president of Mexico’s National Sugar Cane Producers Union, Carlos Blackaller, said dry weather there could reduce supplies by as much as 10{dfeadfe70caf58f453a47791a362966239aaa64624c42b982d70b175f7e3dda2}.

The U.S. consumes about 11 million tons of sugar each year, about one-third of which is imported.

Under the North American Free Trade Agreement, the U.S. receives an duty-free sugar from Mexico. But the government limits low-tariff or duty-free imports of sugar from other countries to protect domestic producers.

The government sets a fiscal-year quota every summer at the 1.2 million-ton minimum dictated by the World Trade Organization.

The so-called tariff rate quota cannot be changed under U.S. law until April 1, when most of the domestic sugar crop has been harvested and sold. So as Mexico and the U.S. face crop problems, some food-makers may be forced to import high-tariff sugar from other producers, costs that could be passed on to consumers.

"We’ll definitely have to open up the TRQ to help meet demand," said Cory Martin of the American Bakers Association, an industry group whose members include General Mills Inc. and Krispy Kreme Doughnut Corp. "We constantly have to ask [the government] for that. We just don’t have enough supply to meet demand in this country."

Raw sugar futures settled Tuesday at 27.49 cents a pound for July delivery on IntercontinentalExchange, near a 2½-month high.

—Jean Guerrero in Mexico City contributed to this article.

Write to Leslie Josephs at leslie.josephs@dowjones.com

Source:  Wall Street Journal

Posted by Haylie Shipp

 

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