May 30, 2014 / 9:27 PM / 3 years ago

UPDATE 2-USDA increases sugar import quota by 650,000 short tons

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NEW YORK, May 30 (Reuters) - The U.S. government said on Friday it will increase import quotas for cane and beet sugar by some 650,000 short tons for the current season to end-September amid signs of dwindling domestic supplies.

In a statement, the U.S. Department of Agriculture said it has allotted an additional 550,000 short tons of raw cane sugar and 100,000 tons of beet sugar for imports.

That is 50 percent more than the existing quota of 1.32 million short tons announced at the start of this season.

The move represents expectations of tightening domestic supplies as farmers in the United States and Mexico cut output. It also underscores the rapid shift in market conditions since U.S. refiners launched a trade dispute with Mexico two months ago.

Since U.S. refiners filed their complaint against Mexican mills in late March, domestic prices have surged 16 percent and this week hit 18-month highs amid concerns about tightening supplies.

At the same time, the global market continues to struggle with a fourth straight annual surplus as output rises. Global prices languish around 17 cents per lb, levels close to breakeven for many producers.

The domestic price surge to an 8-cent premium over the global market, the biggest spread since September 2012, may make imports profitable even with extra freight costs.

The additional allowances are part of the so-called tariff rate quota (TRQ), which permits imports from such countries as top producer Brazil, major exporter Thailand, the Dominican Republic and the Philippines, among others. It does not include Mexico, which is covered by NAFTA rules.

Producers in Central America may welcome the opportunity to sell more sugar to the United States after the rise in prices. Likely countries of origin include Colombia, Guatemala and the Dominican Republic, dealers said.

As expected due to dwindling availability, the USDA said it did not expect to use the so-called Feedstock Flexibility Program this year due to lower supplies. The sugar-for-ethanol program was created by Congress in 2008. (Reporting by Josephine Mason; editing by G Crosse, David Gregorio and Lisa Shumaker)

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