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Published March 10, 2014, 09:59 AM

Sugar shareholders slow to make ’14 grower deals

It’s getting down to the final month for growers setting their annual joint venture arrangements with shareholders of American Crystal Sugar Co.

By: Mikkel Pates, Agweek

FARGO, N.D. — It’s getting down to the final month for growers setting their annual joint venture arrangements with shareholders of American Crystal Sugar Co.

Jayson Menke, with Farmers National Co. in Grand Forks, N.D., says shareholders have been in the driver’s seat on joint venture deals for most years because beets have usually made money for the grower-partners. But some — maybe most — growers lost money growing beets in 2013, so they’re wary about a repeat in 2014.

FNC is the parent company of FNC AgStock, which also manages limited partnerships and joint ventures. Typically this time of year, there’s been a market established for limited partner and joint ventures — either offers from growers who don’t own the shares, or from shareholders who are seeking general partners to grow their beet shares.

Menke says that for the 2013 crop, annually negotiated deals through FNC sometimes involved a $400 to $425 per acre payment to the original shareholder. Typical payments to shareholders in the past five years were around $200.

That is bound to change drastically this year because American Crystal’s gross payment of $68 per ton for 2012 beets was cut in half to a $38 projection for 2013 beets, with an abundance of Mexican sugar expected to continue coming into the U.S. market.

Sliding to zero?

Menke says some of this year’s arrangements include a sliding scale that changes the payment up or down, depending on the gross payment. He says some of the deals have dictated that if the price stays at $38 per ton for the final beet payment, the payment goes to zero. If the payments get even lower, there could be a “negative payment,” he says. That means the shareholder pays the grower.

A year ago, American Crystal required joint venture partners to sign a five-year production agreement, making both shareholder and grower jointly responsible for supplying beets.

If the grower declines to grow the beets, both partners must sign an agreement to dissolve the first partnership before the shareholder can make an agreement with a new grower. This kind of “transfer” must be approved by the co-op.

Menke says in his 10 years in the business of dealing with cooperative share values and joint venture deals, he’s only seen one time where growers weren’t eager.

“Really, the wild card for this whole season has been how many shares will potentially hit the market because a shareholder can’t take that financial situation where they can’t take next to nothing, or have to pay someone to grow their shares,” Menke says. He says his company is advising shareholders to take zero if the alternative is facing a legal test with the co-op.

American Crystal share prices peaked at about $4,450 per share about a year and a half ago, Menke says. The range since last November has been about $1,200 to $1,500.

Cost of production

Andrew Swenson, a North Dakota State University Extension Service farm management specialist, says the Minnesota-North Dakota Red River Valley Farm Business Management beet enterprise analysis for 2007 to 2012 showed a 54 percent increase in the cost of producing beets in those five years.

The total cost was $1,361 per acre for the 2012 crop, including a $328 per acre average joint venture cost. The price of seed had gone up to $173 an acre in 2013, or triple the cost in 2007, before the adoption of Roundup Ready seed. The average land cash rent was $124.49 per acre, up $43.80 per acre from the 2007 levels, or up 54 percent.

Swenson’s data shows sugar beet producers lost $62.46 per acre in the 2011 crop when the price per ton was a relatively healthy $55.67.

The co-op needs a minimum amount of production to make plant operation efficient. American Crystal officials have been telling the shareholders and joint venture partners that the company will enforce the obligation to grow beets, even if they’re not profitable.

“I have to protect all of you from any of you,” president David Berg told growers at December meetings.

If a shareholder fails to grow beets, the co-op has said it could take away the so-called “unit retains,” a portion of a beet payment the company withholds for six or seven years, to reduce borrowing needs. The company can also impose “fixed costs” for each acre that doesn’t get planted. That could amount to $500 to $600 per share in a year. A grower with 100 acres, at $500 an acre, would pay $50,000 under that calculation.