NEW YORK, Aug 21 (Reuters) - Agribusiness Bunge Ltd is considering buying sugar from the U.S. government through the fledgling “sugar-for-ethanol” program to reopen its biofuels plant in Mississippi, according to two industry sources.
The firm, one of the world’s largest agricultural trading houses, has looked into purchasing a significant portion of the sugar the U.S. Department of Agriculture (USDA) plans to sell as it prepares to launch the program this week, the sources said.
The move is the first sign that the government program has won the backing from some in the burgeoning biofuels industry as producers struggle to secure corn due to high prices and low supplies.
The benefits to Bunge are clear: it will secure a steady supply of sugar at a lower cost than corn to restart production at its Bunge-Ergon Vicksburg facility in Vicksburg, Mississippi, which was shuttered in December last year, traders said.
The plant, a joint venture between Bunge North America and Ergon Ethanol Inc., has capacity of 54 million gallons a year, previously used corn as its feedstock and opened in 2008, trade sources said.
“They are looking very closely at reopening this facility,” said an industry source familiar with the matter. “They’re building their plan to come back online around getting a hold of sugar.”
Representatives for Bunge and Ergon did not respond to requests for comment.
The USDA will announce late on Wednesday how much sugar U.S. processors have agreed to sell to the government as part of the so-called Feedstock Flexibility Program announced last week.
The company would be interested in as much as 300,000 tons of sugar, industry sources said. That would represent all of or a large portion of the 300,000 to 500,000 tons expected by many traders to ultimately be available through the program.
The USDA last week announced plans to implement the “sugar-for-ethanol” program for the first time since it was written into 2008 farm law as the government battles plunging domestic prices and looming forfeitures of sugar used as collateral for government-backed loans that come due at the end of the month.
At a yield of around 135 gallons of ethanol per ton of sugar, the program would have a small effect on ethanol production now running at an annualized rate of 13 billion gallons a year.
Still, it could provide much-needed supplies to facilities hurt by lack of corn availability before the harvest later in the year when U.S. farmers are expected to produce a record crop.
“There may be some producers that are finding it challenging to locate corn until the new crop is in that would look to this program as a good stop-gap,” said Bob Dinneen, president and chief executive of the Renewable Fuels Association (RFA).
“I suspect there will be a couple of plants that will take advantage of the program.”
Bunge-Ergon Vicksburg was one of a number of ethanol plants that shut down after the 2012 drought slashed corn crops, limited feedstock availability, and sent prices surging.
The plant is also at a geographic disadvantage, far from the heart of the country’s corn belt and ethanol’s major feedstock in the United States.
But it is close to the center of U.S. cane sugar production in Louisiana and Florida.
Bunge’s Sugar and Bioenergy division operates eight sugarcane mills in Brazil with a capacity of over 20 million tonnes both sugar and ethanol in the South American country, according to the company’s website.
Its footprint in the U.S. biofuels market is smaller. In addition to the Mississippi facility, the company is also partnered with Southwest Iowa Renewable Energy on an ethanol plant in Council Bluffs, Iowa.
Competition for corn remains steep even with prices tumbling and a bumper crop expected this year.
“It’s hard to get in the game when you get out of it, and you don’t have a pipeline of grain pointed at you,” said a U.S. ethanol trader.
This will be the third time this year the USDA is buying sugar as it looks to curb a ballooning oversupply, boost domestic sugar prices and prevent mass forfeitures on loans by processors.
U.S. raw sugar futures on ICE Futures U.S. settled at 20.45 cents a lb on Wednesday, up 0.74 percent and up over 7 percent since the end of June due to the USDA’s efforts.
Even so they are still below an estimated forfeiture threshold of about 20.9 cents. Refined beet prices have been trading around 26 cents a lb.
This year’s purchases are the first in over a decade and many expect the authorities to buy more through the program in a later round ahead of a September loan deadline.
“This first round will be the test case. We have to get through the mechanics of it,” said Tom Earley, a food policy consultant with Agralytica in Alexandria, Virginia.