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Show mm GAINS AHEAD FOR SUGAR SWEETENER FIRMS The outlook for America's sugar and . sweetener suppliers is optimistic. At the halfway mark in 1980 the majors had registered sales and profit advances ad-vances and further gains are anticipated an-ticipated for the remaining two quarters. Demand for sugar and sweetening agents was relatively brisk earlier this year, and it is expected to hold up quite well throughout 1980 and into 1981. Also, no serious production imbalances im-balances are looked for and the favorable carryover stocks should be able quite easily to make up for any shortfalls. In general, operating prospects for participating firms are encouraging. A MID-SEVENTIES RERUN? Back in 1974-1975, supply-demand balances tightened substantially, resulting in soaring prices for sugar. During that period world prices (wholesale, not retail) topped 60 cents a pound. In similar pattern, sugar prices this year have spurted smartly ahead. Speculators expecting a shortfall in production have undoubtedly been responsible for at least a part of the 1980 price runup. However, sugar usage on world markets is heavy and higher consumption con-sumption rates can easily translate into increased prices. Overall, though, we do not feel that 1980's scenario is a rerun of that seen in 1974-1975. This time around there is no drastic shortage such as then existed. Also, the growing availability of high-fructose corn syrups used in conjunction with, or as a substitute for, sugar offers a measure of relief from escalating sugar prices for indMstrial users. U.S. AM) THE WORLD In domestic markets per-capita sugar consumption has actually declined in recent years, and further slippage is likely during the current decade. This reflects not only our diet consciousness but also the wider market for substitutes. Such is not the case on the world stage where sugar consumption is still on the rise. The significance of the divergent trends lies in the fact that sugar is a commodity traded worldwide and price swings are governed in large measure by world supply-demand balanced. Spot shortages and uptrending sugar demand in most of the developing countries tend to make the price action all the more volatile. So. even with U S per-capita sugar consumption on the wane, world conditions con-ditions seem still able to easily influence in-fluence the going price levels in U S markets. PRICES BRING ABOUT CHANGE Prices, as well as diet considerations, have an impact on sugar demand. For example, before prices skyrocketed in the 1874 197") poriixl per-capita consumption con-sumption stood at an all-time record of 103 pounds. But by 1979 it had shrunk to 91 pounds. In retrospect, the zoom in sugar costs caused many consumers either to cut back or switch to substitutes. sub-stitutes. Industrial users in particular began to rely increasingly on alternatives. A good case in point is the soft drink industry in-dustry As sugar prices accelerated, firms in the field began to reformulate their products using high-fructose corn syrup as a more common sweetener. For some time now, there has been a substantial increase in demand for corn syrup, and we look for further growth ahead A 1W0 BONANZA Earlier this year, the Coca-Cola Company and PepsiCo changed their policies regarding corn syrups in their major brands. Before this, both firms used a percentage of corn-related sweeteners in their lesser brands. But a recent decision by these soft drink giants to employ increased corn syrups in their high volume brands is a bonanza for sweetener firms. Note, too, that many sugar concerns participate in corn syrup activities as well, so that they now share the best of )K)th sweetener worlds. Hence, the Research Department of Babson's Reports is encouraging continued representation in this sector of the stock market for further appreciation. |