A year ago when sugar producers gathered for the 29th annual International Sweetener Symposium sugar prices were 42c a lb f.o.b. Midwest, the projected 2012-13 sugar ending stocks-to-use ratio was 14.7% and there was optimism a new farm bill with an unchanged sugar program would be enacted by the end of 2012. Last week at the 30th annual Symposium held in Napa, Calif., sugar prices were 25.5c a lb, the 2012-13 stocks-to-use ratio was 18.8%, the farm bill still was not passed and the market outlook was for more of the same.

Sugar prices a year ago were down about 25% from 2011, when values were on their way to highs near 60c a lb, but few if any saw values tumbling another 40% to current five-year lows. As was noted at the Symposium, a combination of larger-than-expected beet and cane sugar production in the United States and record sugar output in Mexico led to a sugar glut, which has led the U.S. Department of Agriculture to spend about $50 million to reduce domestic supplies to at least temporarily stave off sugar loan forfeitures, the first of which may have occurred Aug. 1.

“It’s pretty apparent to us we are in an environment where loan forfeitures are likely,” said Dan Colacicco, director of Dairy and Sweeteners Analysis for the U.S.D.A.’s Farm Service Agency.

If forfeitures occur, which traders think likely before Sept. 30 (the end of the 2012-13 marketing year), it would be the first time since 2004, and more accurately since 2002 for the reason of oversupply. But the U.S.D.A. still has tools in its chest to avoid costly forfeitures, which in effect only delay the marketing of sugar.

The most talked about effort at the Symposium was the Feedstock Flexibility Program (F.F.P.) under which the U.S.D.A. would buy sugar off the market (presumably at forfeiture levels of about 20c a lb for raw cane and about 24c a lb for refined beet sugar), then resell it to renewable fuel producers (assumed to be ethanol) “for what they can get,” which is forecast to be around 10c to 12c a lb. The F.F.P. program is seen as the most costly alternative to forfeitures, which explains the U.S.D.A.’s reluctance to use the tool when it is mandated to run the sugar program at the least cost and has in fact run the program at no cost for the better part of the last decade. While Mr. Colacicco said the department is looking at the F.F.P. and hasn’t yet decided whether to use it, some attendees and speakers at the conference fully expect the program will be implemented by the end of September.

Part of the problem is the two tenders that removed about 350,0000 tonnes of sugar from the market in exchanges for refined sugar re-export credits and Certificates of Quota Eligibility will have most of their impact next year. While the tenders appeared to result in modest gains in raw sugar futures prices, and in fact resulted in no Aug. 1 forfeitures, the impact on the nearby cash market was minimal with prices still hovering around 25.5c a lb, only about 1.5c above the refined beet sugar forfeiture level. The F.F.P., meanwhile, permanently removes sugar from the market by diverting it to biofuels.

The other part of the conundrum is Mexico, which received a bashing at the Symposium. While the United States has limits on how much sugar domestic producers may sell onto the U.S. market and how much may be imported under World Trade Organization agreements, there are no restrictions on how much sugar may be imported from Mexico duty free under the North American Free Trade Agreement. Neither does Mexico have any restrictions on its domestic sugar production, while the United States limits its domestic sugar marketings to 85% of projected use.

Some in the trade said they expected the first 300,000 tonnes of domestic sugar removed from the market by the U.S.D.A. to be replaced by shipments from Mexico, especially if U.S. prices firm, causing market participants to chafe at the idea that U.S. tax dollars are actually funding Mexico’s surplus.

In its July supply-and-demand report, the U.S.D.A. forecast U.S. imports of sugar from Mexico at a record 1.9 million tons, raw value, in 2012-13, equal to 14% of total U.S. supply.

Humberto Jasso Torres, director general of the Mexican Sugar Chamber, which represents 90% of the cane mills in Mexico, told Symposium attendees shipments of Mexican sugar to the U.S. likely would remain strong through November, at which point Mexico may have worked through much of its surplus. Monthly shipments from Mexico have topped 200,000 short tons, raw value, since April.

Mr. Torres acknowledged Mexico’s lack of restraints on its sugar program, but noted the lack of restraints on U.S. production of high-fructose corn syrup, which has comprised 25% to 30% of total Mexican sweetener consumption the past two years, up from practically none five years ago. The increase in the use of HFCS imported from the United States by the Mexican beverage industry has directly corresponded to increased shipments of Mexican sugar to the United States since the implementation of NAFTA Jan. 1, 2008.

Low sugar prices in Mexico prompted some bottlers to cancel HFCS contracts, Mr. Torres noted. One of the primary requirements of Mexican cane growers, who blocked sugar movement in Mexico earlier in the year in an effort to raise prices, was for the government to restrict imports of HFCS. While HFCS use in Mexico is expected to decline from 1,735,000 tonnes in 2011-12 to 1,500,000 tonnes in 2012-13, the free flow of HFCS from the United States appears to be one of the sticking points keeping Mexico from enacting a sugar policy.

While increasing demand and lower-than-expected sugar production in the United States and Mexico precluded potential oversupply in the first five years of NAFTA, the current oversupply likely will continue to fuel the rhetoric between the two countries, and possibly between U.S. sugar producers and corn refiners, who are anticipating a record large 2013 corn crop, and potentially lower, more competitive HFCS prices in both countries in 2013-14.