Faced with a huge sugar surplus, the U.S. government published a rule on Friday that allows it to sell excess amounts at a loss to ethanol companies for making biofuels for cars and trucks.
The Agriculture Department said the "sugar-for-ethanol" program, authorized by a 2008 law, would be "if needed ... an additional tool to manage the domestic sugar surplus."
A sugar industry source said the government would probably implement the sugar-for-ethanol initiative in August or September if prices stay low despite the USDA's efforts to boost them. A USDA spokeswoman declined to say when or if the program will start.
Earlier this week, the USDA announced a second round of sugar purchases that would be used to retire re-export credits, reducing the domestic supply.
A sugar surplus of 2 million tons is forecast for the Sept. 30 end of this marketing year, compared with usage of nearly 12 million tons. That would represent a stocks-to-use ratio of 16.8 percent by USDA calculations, but a 15 percent carryover is the goal.
Some $405 million in sugar loans, issued by the USDA to guarantee a minimum price to growers, will mature in coming weeks. If market prices remain low, processors will forfeit the sugar to the USDA and keep the loan money.
The USDA is required by law to operate the sugar program at the lowest possible cost to taxpayers.
Under the sugar-for-ethanol rule, the USDA could buy sugar not needed for human consumption and sell it to bioenergy producers, with the buyer taking possession within 30 days.
Congress enacted the provision to give sugar a chance to become a raw material for biofuels, as it is in Brazil. At the time, there were expectations that the then-booming biofuels industry would use all sorts of feedstocks, from corn to crop residue to woody plants.