Business & Finance: Sugar

From the post-War collapse until last year there was one sure way of making money in the sugar market: sell short, stay short. With few interruptions the trend was steadily down—from 20¢ per lb. in 1920 to a historic low during Depression of less than six-tenths of a cent. By last week, however, U.S. sugar, having climbed back to the highest level since 1928 (2.7¢) looked sweeter than it had for a decade. And though nearly every sugar man had some grudge against the new order, recovery was largely the result of the Government’s grim efforts to put the industry in a strait jacket. The world price is still less than 1¢.

Catalyst in the New Deal’s complex rehabilitation formula was the Jones-Costigan Act, which established a quota system for both imports and domestic production. Hardly less important was a reduction in the tariff on Cuban sugar from 2¢ to nine-tenths of a cent per lb. Net result was a closed system (taking in the U.S., its insular possessions and Cuba), in which AAA could dictate supply, if not demand. Western sugar beet growers received a fat quota and benefit payment from a processing tax; duty-free producers in Hawaii, Puerto Rico and the Philippines got higher prices which partly compensated for the reduced tariff advantages; and Cuba, assured of an outlet for about 70% of its sugar at profitable prices, was rescued from total economic collapse. Meantime the price of sugar in the consumer’s bowl has risen about 1¢ per lb.

Throughout last year the sugar market was in continual turmoil, harassed by quotas, taxes, tariffs, squeezes, innumerable AAA regulations and periodic stampedes to get sugar under this or that barrier. At the start of this year the future was beclouded by 240,000 tons of sugar carried over from last year’s quota. The U.S. had used less sugar than AAA expected because canning and preserving was curtailed by the Drought. But in the first four months of this year, the big Manhattan sugar house of Lamborn & Co. estimates, consumption ran some 13.5% ahead of the same period of 1934. And there is talk that AAA may have to raise its total quota of 6,280,000 short tons before the year is done.

Because Cuba was the chief beneficiary of the new sugar deal, Cuban sugar securities, many of them long since written off by investors as a total loss have come suddenly to life. Cuba Cane products, the island’s largest producer, was reorganized last February as Cuban Atlantic. Francisco Sugar’s 7½ bonds (in default) have jumped from 23¢ on the dollar to 44¢ since the year end. Certificates of deposit for Camaguey’s 7% bonds soared from 2½¢ on the dollar to 12¢. Manati’s preferred stock climbed from $4 per share to $10. Cuban-American, one of the island’s big companies still solvent, has watched its preferred double in value to $80.