Wednesday, March 8, 2017

Law of unintended consequences III -- the Sugar trade wars (according to some)!

OK this morning it emerged that Mexico has "suspended all March sugar export to the US ".  The immediate reaction of those reading these article s(mostly zerohedge) was predictable because obviously they don't read...they just saw the title -- which was misleading.

What really happened:  Sugar trade between Mexico and the US is managed -- in order to maintain the US sugar production industry.  Anyway, the trade is managed in two ways:  (1) there is an absolute limit to the amount of sugar sold from Mexico, (2) these sales are "spread throughout the year".  What happened is that in the first quarter of 2017 too much sugar was sold to the US, Mexico has been trying to shift the cap (to reflect production) for some years, but has had no success.  In the past on an add hoc basis these caps were shifted by the appropriate US authorities.

The problem now is that new US administration has not replaced the group that can agreed to these add hoc changes in the sugar quotas.  Mexico has no one to talk to in the Agriculture or Foreign affaires department to discuss the issue  or make a decision.  Those empowered to make those decisions have either left or been dismissed and not been replaced.

So the news today is that Mexico has started a "Trade war with America"; not really, Mexico is following the terms of the sugar trade that have been agreed since 1992, these terms cannot be modified without the consent of the US and the US has not, at this time. agreed to waver the rules.

US sugar price on the CME are at an all time high...


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