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Published September 09, 2013, 09:23 AM

American Crystal gets another federal loan

American Crystal Sugar Co. of Moorhead, Minn., has taken out a U.S. Department of Agriculture loan on $71.2 million of sugar, in a move that effectively doubles its potential for forfeitures at the end of the federal fiscal year, Sept. 30.

By: Mikkel Pates, Agweek

MOORHEAD, Minn. — American Crystal Sugar Co. of Moorhead, Minn., has taken out a U.S. Department of Agriculture loan on $71.2 million of sugar, in a move that effectively doubles its potential for forfeitures at the end of the federal fiscal year, Sept. 30.

David Berg, American Crystal’s president and CEO, says the decision on whether the sugar will be forfeited to the government — whether the loan value is higher than the sugar market price — will be made clear later this month. The sugar program is “doing what it was intended to do,” Berg says.

Kevin Price, the company’s director of government affairs in Washington, D.C., adds there is “nothing new” about the program. The government safety net includes a long-standing loan program from USDA’s Commodity Credit Corp. — essentially a price floor — and a sugar-to-ethanol program called the Feedstock Flexibility Program, new in the 2008 farm program.

Despite the late change in the loan status, Price says it’s a “close call” and too soon to determine whether the sugar will be forfeited. The American Crystal loan could be among an estimated $300 million in loans, nationwide, that might be forfeited at the end of September.

Price notes that American Crystal initially took out a $35 million loan in March, but repaid that loan about a week ago. That meant the loan wasn’t included in $34.5 million in federal loan defaults that were counted and reported at the end of August. Crystal then took out the subsequent loan that included “largely the same sugar” it already had under loan, Price says, even though it doubled the amount and doubled the sugar.

Double-down loan

“It all happened within a few days in the last few weeks,” Price says. “The original loan was something that was site-specific and through the course of business, sugar moves around the company,” so it made sense to make the new, bigger loan for logistical reasons. He says USDA rules require that the loan reflect the location — not just the quantity and quality of the sugar.

“We appreciate all the efforts USDA is making to try to address the oversupply, but we’d appreciate additional actions to address the oversupply and return the market to a more normal balance.”

That step would be another round of sugar-to-ethanol efforts.

Price says the new, larger loan has nothing to do with the stored 2012 crop sugar at the company’s Hillsboro, N.D., plant. A “not insignificant” amount of sugar in storage has had to be blended with newly made sugar because it had gone out of color specifications as a result of insufficient cooling equipment to handle last year’s large-tonnage crop that was high in sugar content.

A symptom of the market

The national loan rate for sugar averages about 24.09 cents per pound, but that’s broken down regionally, so the loan price per pound is about 23 cents for American Crystal and other processors in the region.

If sugar is forfeited to the government, it will remain in American Crystal facilities until the government decides what to do with it, Price says. The government pays 10 cents per pound per year to store refined sugar.

“It’s not a money-making opportunity,” Price says.

“It’s not viewed as a very attractive payment rate.”

The potential forfeitures are “merely a symptom of the low price in the market, oversupplied by Mexican sugar,” he says. “That’s the reality, that Mexico expanded acreage 9 percent and overall production by 38 percent; the U.S. industry expanded acreage 0.5 percent and production by 6 percent,” he says.

He says 20 percent of the Mexican industry is run by the Mexican government. “Because of that, the U.S. market is oversupplied, the prices stink,” Price says. “We (in the U.S.) didn’t expand acreage anywhere near where Mexico did. We had good weather, but we are under marketing allocations so it’s impossible for us to over-supply the market. Mexico did.

“It’s unfortunate that there have been forfeitures; there may be more,” Price says. “It’s also the harsh reality of how bad this market is. The sugar program is a safety net to guard against low prices. Low and behold, that’s what we have.”

Neither Price nor Berg would comment directly on whether they think Mexico may be exporting sugar into the U.S. at so-called “dump” levels, which would be subject to a challenge and penalties under trade law. Sugar sold in another country below its own cost of production can be considered dumping, regardless of a trade agreement, Price acknowledges. It is also dumping to sell sugar below the price a country sells domestically.

“We’re not making that claim today,” Price says, adding the industry so far hasn’t looked into details about whether that has occurred.