In spite of America’s sweet tooth, the country is awash in sugar. So much so that the Agriculture Dept. wants to use a little-known portion of the 2008 Farm Bill to buy up surplus supplies to raise the commodity’s price. At the same time, it will sell the surplus to ethanol producers at a loss. The likely big winner in all this? Monsanto Company (NYSE:MON).
Big rock candy mountain
The U.S. produced 8-million metric tons of sugar last year, making it one of the world’s largest producers. Of that amount, 55% of it was derived from sugar beets, of which Monsanto Company (NYSE:MON)’s genetically modified seeds own 95% of that portion.
The remaining 45% came from sugarcane. As the USDA notes, U.S. sugar prices have been well above world prices since 1982 because the government supports domestic sugar prices through loans to processors and a marketing allotment program. Lately, though, sugar has been selling at its lowest level in four years, which jeopardizes growers who’ve taken out loans from the USDA when prices were higher. Last week, the agency asked the Obama administration to allow it to buy hundreds of thousands of tons of sugar under a sugar-for-ethanol program called the Feedstock Flexibility Program. Since it’s required by law to prop up sugar processors, it says that this is the cheapest way it can do it.
Yet, by ensuring that sugar prices stay high, it guarantees farmers will continue to process more sugar than necessary, particularly sugar beets, as they’re the most popular way of producing, thus giving an indirect subsidy to Monsanto Company (NYSE:MON), which will happily ply the market with its GMO seeds.
Sticky sweet
Most ethanol producers, however, can’t use sugar, because corn is the preferred feedstock (though it is possible to add some sugar into the mix), meaning they’re going to have to unload the sugar onto others. Archer Daniels Midland Company (NYSE:ADM), the largest U.S. corn-based ethanol producer, does have a sugarcane-based ethanol production facility in Brazil.
Sugar high
According to the National Confectioners Association, which represents candy industry stalwarts such as Hershey, Mars, and Nestle, the sugar subsidy program has cost consumers about $14 billion since the Farm Bill’s adoption.
It’s a deal so sweet for Big Sugar, Monsanto Company (NYSE:MON), and probably even Archer-Daniels that it makes your teeth hurt. It also shows that taxpayer subsidies are being passed along to those least in need of them.
The article Sweet Deal for Monsanto originally appeared on Fool.com.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola.
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