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Published November 04, 2013, 04:53 PM

American Crystal sugar beet payments to drop, as expected

American Crystal Sugar Co. growers are learning the sobering reality about 2013 sugar beet crop payments — they will be about half what they were last year.

By: Mikkel Pates, Agweek

FARGO, N.D. — American Crystal Sugar Co. growers are learning the sobering reality about 2013 sugar beet crop payments — they will be about half what they were last year.

David Berg, president and CEO, said the cut will mean a $300 million reduction in the year’s payout, based on about 25-tons-per-acre yield and a $38-per-ton average payment. He said the company announced a tentative $2-per-ton unit retain, in which growers’ payments are reduced but paid back over seven years.

That price compares to about $68 per ton that ultimately will be paid for the 2012 crop, with the last payment coming at the end of this year. That payment was based on a yield of 27 tons per acre.

Growers had been bracing for the news, and started hearing the details in factory district meetings Monday in Hillsboro, N.D., and Ada, Minn.

The difference in beet payments primarily is a result of a meltdown in sugar prices from an influx of Mexican sugar and the rules of the North American Free Trade Agreement. Prices have been low enough that American Crystal in September forfeited sugar that had been loan collateral to the federal government.

Berg said he’d “like to believe” that the Mexican situation is “on the way to resolution,” but that it’s hard to predict how it will be fixed. He says the Mexicans have talked about exporting sugar out of North America, but a lot would need to be exported to make a difference.

American Crystal has five factories and each has district meetings with growers. Other meetings are being held throughout the Red River Valley through Thursday. A bankers meeting also will be held Tuesday in Grand Forks, N.D.

Berg described the meetings as “serious,” but said he didn’t detect anger. “There’s great concern,” he said, adding that farmers can’t break even at less than $900 an acre anymore.

The effect on stock price

Jayson Menke, a stock specialist with FNC Agstock LLC, a wholly owned subsidiary of Farmers National Co., says the downturn in the beet economy appears to have had an effect on share prices. In September, the company recorded a sale of 82 shares at $2,000 per share. In mid-October, 83 shares sold for $1,750 per share, but in late October, 30 shares sold for $1,600.

Menke says the last time share values were this low was March 19, 2008, when they were in the $1,600 range. Shares relate to the number of acres the producer has the right — but also the obligation — to grow and deliver.

Growers contacted by Agweek declined attribution because they are part of a cooperative and not all co-op members have heard the details in the factory district meetings.

One grower said one of the impacts is on limited partnerships in which growers pay shareholders to grow their shares. The unpredictability for 2014 will have an impact, unless American Crystal can come up with accurate figures that work, given increased input costs.

The shareholder, who joint-ventures out his stock to another grower, says that if per-ton beet payments remain in the $37- to $38-per-ton range, farmers will compare that with reduced prices for corn and other crops.

“The value of the joint venture is going to be less, but someone is still going to want them,” he says. “When corn is at $3.50 per bushel, that’s not very exciting as an alternative. If corn were $8 (per bushel) that would be different. There’s more to it than the per-ton price.”

Sky-high inputs

Kurt Wickstrom, president and CEO of Minn-Dak Farmers Cooperative in Wahpeton, N.D., confirmed that he sent out a projected price for 2013 beets on Nov. 1, which included a payment of roughly $40 per ton. But Wickstrom also cautioned that the co-op had not yet finalized its budget for the crop, which will be done within the next 10 days. This year’s harvest is more than 90 percent complete.

Last year’s crop was 26.7 tons per acre, he said, and shareholders received $75 per ton for it. The co-op is projecting “slightly smaller yields and a payment of just a little over half,” so it’s a big drop, Wickstorm said.

One American Crystal grower in the Moorhead, Minn., factory district said it’s going to be an interesting winter, because of the fallen beet payments, and that he wouldn’t be surprised if beet stock prices go below $1,000 per share by February. He acknowledged being a little grumpy in the first place because — though he was finished fighting mud on his own sugar beets — he was renting equipment to neighbors to help with their crops, and he was still in the midst of harvesting soggy soybeans and had corn left, too.

The farmer predicted that if the economics of beets don’t improve, shareholders will still grow them — because they are legally obligated to — but they might not work as hard at it.

“It’s a spiral,” he said. “The effort is so much more with sugar beets than any crop. A guy’s going to grow them, but are they going to spend the money to pick up that extra ton or two an acre?”

He said that could have an impact on how many beets the factories have to put through the plants, which affects efficiency and profitability.

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