On the heels of news of loan forfeitures and low beet payments, the local sugar industry received more bad news this week: Sugar prices are likely to stay depressed in 2014, according to supply/demand outlooks released this week by the U.S. Department of Agriculture.
USDA says sugar production in the U.S. has gone up, Mexican imports of sugar are expected to remain high and it is estimated about 2.4 million tons of sugar will be sitting in storage in September 2014.
"The result of this report -- for now anyway -- is a lousy outlook for sugar prices," American Crystal Sugar CEO Dave Berg wrote on his blog.
This scenario would make 2014 the second straight year of severely depressed sugar prices. This year, Crystal Sugar defaulted on a government loan of $71.2 million under the federal government program that provides relief when sugar prices are down. It was the first time in more than a decade low sugar prices triggered loan forfeitures.
The market price for raw sugar was about 21.5 cents a pound when Crystal announced it would forfeit the sugar it put up as collateral for the government loans. The regional loan rate for sugar was about 23 cents per pound.
"Today, it's about the best place we have to sell sugar," Berg told The Forum newspaper of Fargo-Moorhead in October.
Berg told The Forum the forfeiture did not represent a financial hit for American Crystal.
"Actually, it's beneficial to our financial health," he said. "This is the way the sugar program is supposed to work."
Lower sugar prices do, however, affect payments to the 3,000 growers in the cooperative. Growers will be paid about $38 per ton for their 2013 crop, down from $68 a ton last year.
While announcing that payment on his blog last week, Berg said most of Crystal's growers will lose money and in many cases "they will lost a lot of money."
On his newest blog reporting the USDA report, Berg writes:
"I really hate to be so gloomy with these reports all the time, but this most recent set of estimates was NOT what we in the sugar producing end of the business were hoping for."
Some highlights of the USDA report:
- The sugar-cane crop in Louisiana is expected to be a record 1.7 million tons of processed sugar.
- USDA expects 2 million tons of Mexican sugar coming to the U.S. in 2014.
- USDA predicts 2.4 million tons of sugar will be in silos and warehouses on Sept. 30, 2014. Berg's blog says that's about 20 percent of the total used every year and 700,000-800,000 tons more than needed on hand.
(Mike McFeely is a talk-show host on KFGO-AM in Fargo, N.D. He can be reached at email@example.com. Follow him on Twitter @MikeMcFeelyKFGO.)