Diving prices worry sugar-beet industry
FARGO -- Sugar prices have plummeted from a year ago, and that is already having its effect on sugar beet cooperative stock prices. Luther Markwart, executive vice president of the American Sugarbeet Growers Association, listed a number of negati...
FARGO -- Sugar prices have plummeted from a year ago, and that is already having its effect on sugar beet cooperative stock prices.
Luther Markwart, executive vice president of the American Sugarbeet Growers Association, listed a number of negative trends for the sugar industry in an address to at the 51st International Sugarbeet Institute in Fargo Wednesday.
Sugar prices have plummeted from extremely high levels of the past two or three years, he said. Prices now are heading to "forfeiture" levels -- where companies can forfeit sugar to the government when prices fall below loan levels.
"The administration is looking at all kinds of options about how we can avoid forfeitures," Markwart told a room full of farmers and industry operatives at the annual event.
Sugar prices were extremely high in 2011 and 2012 because of droughts in Brazil, India and Australia, and tight inventories around the world, Markwart said. The U.S. Department of Agriculture was conservative about sugar imports because of a still-new free trade deal with Mexico.
But last April, Secretary of Agriculture Tom Vilsack allowed an extra 450,000 tons of sugar into the U.S. because of under-estimates of Mexican sugar coming into the country. Now, the U.S. has a beet and cane sugar bumper crop and the Mexican crop is big, too, so prices are heading down.
Federal budget woes affect the ability to pass a multi-year farm bill, which includes sugar provisions. Markwart said the biggest fight in the farm bill is over cuts to food programs, which account for 80 percent of the farm program spending. The sugar program is technically operated at zero cost, but with quotas that control the amount of imports.
Markwart listed numerous perils for sugar.
He described recent congressional efforts to dismantle the sugar program -- failing by increasingly slimmer margins. With redistricting, Republicans have increased their hold on congressional seats for the next 10 years, which will probably lead to more partisan division. Sugar consumers -- burned by high prices -- are motivated, organized and coordinated to get rid of the sugar program because they felt the effects of 71 percent increases in sugar prices.
"(High prices) shifted close to $3 billion a year from the 'users' to your side of the ledger," Markwart told the farmers. "That helped you pay off a lot of debt, replace a lot of equipment and do all those very good things, but what it did was it stirred all of the users in all of the congressional districts."
Markwart declined a farmer's question about where prices are headed, saying there are too many variables.
The sugar beet per-ton price for American Crystal Sugar Co.'s 2012 crop is above $65 per ton -- and on a big crop -- but that is still buoyed by the higher sugar prices that have dissipated.
It isn't clear how much those declines will affect the co-op's prospects for 2013 crop payouts. One question for next year's sugar production will be ongoing effects of a drought, especially in sugar-beet areas that are running short on irrigation water.
In the current 2012 and 2013 season, sales of Crystal shares have sold in a still-healthy range of $3,700 to $4,450 per share. This year's sales prices compares to the 2011 and 2012 when sales ranged from $3,500 to $4,000 per share.
Kevin Price, a Crystal lobbyist, said the cooperative currently has no outstanding loans under the U.S. sugar program, so likely is not in danger of forfeiture. As the market has soured, a loan is becoming more of a possibility. "It's certainly risen on the list of options we are looking at, and we might," he said. "But that decision has yet to be determined."
Price told Agweek that Crystal doesn't use the loan program every year. That decision depends on market conditions, the need for capital and other sources of funds and other factors. Typically, a relatively small amount of any crop goes under loan, he said. Every sugar company is different and some use the program less than others, he said.