"No one's talking about it, but a number of HFCS plants are running at full capacity, some probably exceeding full capacity," said Roy Huckabay, analyst at The Linn Group. "Look at sugar prices," he added. Sugar prices scaled a 30-year top at 36.08 cents per lb on Feb. 2 amid fears that already-tight supplies would dwindle further as a cyclone hit sugarcane fields in Australia, the world's third-largest exporter of raw sugar.

An estimated one-quarter of Australia's sugar crop may have been lost in the sugar-producing state of Queensland after Yasi struck following heavy rains and flooding at the end of last year. Brazil, the world's largest sugar exporter, has also had to contend with bad weather.

Agricultural processor Bunge Ltd said on Feb. 10 that its sugar business in Brazil might be slow to recover from a 2009 drought. Even as corn prices have surged to their highest in 2-½ years, with spot corn futures rising 52 percent in 2010 and up nearly 13 percent this year as of Friday, the higher price of sugar is making corn sweeteners attractive. 'USDA MOVE MAKES SENSE' The United States is the biggest consumer and manufacturer of high-fructose corn syrup, with soft-drink makers the largest users.

The sweetener was added to beverages such as Coca-Cola in the early 1980s, but US food makers have been edging away from it in recent years, trying out a return to sugar in some products after studies linked corn syrup to obesity. Ray Young, chief financial officer at Archer Daniels Midland Co, told analysts this month that industry exports to Mexico totaled about 1.5 million tonnes in 2010, up 90 percent from 2009, and were seen growing slightly in 2011. "Industry corn-sweetener volumes driven by exports to Mexico and Canada continue at high levels," Young said. The US Department of Agriculture on Feb. 14 estimated an extra 15 million bushels of corn would be used to produce HFCS in the year ending Aug.

31 on increased exports to Mexico. The USDA's move makes sense considering the high price of sugar, said Shawn McCambridge, an analyst with Prudential Bache Commodities. "The push to replace high fructose with sugar has pretty much been put on hold for the most part," he said. An estimated 530 million bushels of US corn will be used in the 2010/2011 year, up from 512.72 million bushels in 2009/2010, according to the USDA'S Economic Research Service. In 2010, exports totaled 1.359 million short tons of the 9.28 million total supply, the USDA said. In 2009, exports were 684,000 short tons of the 8.71 million produced. In 2009/2010, HFCS averaged 19.62 cents per pound, according to the Economic Research Service.

The spot price currently is about 23.65 cents. Raw sugar futures for March were at 31.20 cents a lb on Friday. The high-fructose industry is a relatively small consumer of corn -- it represented just 3.5 percent of corn usage in 2009, the National Corn Growers Association says, compared with 32.1 percent for ethanol in that year. However, the added strain from an oft-overlooked segment is further tightening a market already stretched, with the lowest stocks-to-use ratio since the Dust Bowl of the 1930s. MEXICO'S PART IN THE SWEET SCENARIO Outside of the United States, Mexico is the largest user of US high-fructose corn syrup.

On Monday last week, the USDA raised by 100,000 tonnes Mexico's estimated consumption of high-fructose corn syrup in 2010/2011 to 1.75 million tonnes. Increased HFCS use implies lower sugar consumption in Mexico, now projected at 4.329 million tonnes raw value, a decrease of 106,000 tonnes from last month.

Put simply, Mexico is exporting more sugar to the United States, where it is priced against the domestic sugar futures contract , and importing HFCS as a less costly substitute. Philip Gorham, a senior equity analyst at Morningstar Inc who follows the beverage industry, said a challenge for HFCS users is that corn-based sweetener prices "tend to move in lock step with sugar". "There is no doubt costs are rising," Gorham said. "They (soft-drink companies) do hedge," but it is inevitable that they will feel the impact of higher prices, perhaps a year from now, he said.

EUROPE WEIGHS COST OF SWEETENERS In Europe, high-fructose corn syrup output and demand are regulated by European Union authorities, who might consider modifying production quotas or import tariffs if sugar prices remain high for an extended period, analysts said. However, London-based Tate & Lyle finance director Tim Lodge noted the cost advantage of a corn-based sweetener is greater in the United States than in Europe. Currently, import tariffs on isoglucose, as HFCS is known in Europe, into the European Union exceed 500 euros ($675) per tonne, dealers said. Lodge said that if the EU were to alter HFCS market rules, it would more likely cut import tariffs, potentially boosting imports, than increase domestic production quotas.