Diving sugar prices dampen share values

FARGO, N.D. -- Sugar prices have plummeted from a year ago, and that is already having its effect on sugar beet cooperative stock prices and stock joint venture markets.

FARGO, N.D. -- Sugar prices have plummeted from a year ago, and that is already having its effect on sugar beet cooperative stock prices and stock joint venture markets.

Luther Markwart, executive vice president of the American Sugarbeet Growers Association, who describes himself as an "eternal optimist" listed a number of negative trends for the sugar industry in an address to at the 51st International Sugarbeet Institute in Fargo, N.D., on March 13.

Markwart says sugar prices have plummeted from extremely high levels of the past two or three years. 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 says. The U.S. Department of Agriculture prudently 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 Mexico 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 says 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 lists numerous perils for sugar. He describes 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."

Direction from here is unknown

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.

Alerus Securities handles trades in American Crystal Sugar co-op shares. In the current 2012 and 2013 season, sales have sold in a still-healthy range of $3,700 to $4,450 per share. Sales typically run from September to mid-March at the earliest or early May. Sales or transfers must be approved by the Crystal board of directors.

Kevin Price, a lobbyist for American Crystal, says 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 says. "But that decision has yet to be determined."


Price tells 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 says. Every sugar company is different and some use the program less than others, he says.

Sugar program loans can go for up to nine months under the program, but all expire by the end of the federal fiscal year, which ends Sept. 30. He says the company may use the program this year.

This year's sales prices compares to the 2011 and 2012 when sales ranged from $3,500 to $4,000 per share and ended at $3,800 on March 16, 2012 -- the earliest end to a season, says Jayson Menke, an Alerus ag stock specialist based in Grand Forks, N.D. To compare, share sales in 2010 and 2011 ranged from $2,750 to $3,500 per share and 2009 and 2010, with shares ranging from $2,300 to $2,600.

But sales prices have declined in the past three months.

Menke notes that the earliest sale in the current season was Sept. 7, at $4,200 per share. Those first 20 or 25 shares were sold within five minutes of them being offered to subscribers via email. Prices increased to a peak $4,450 in early October. The last sale over $4,000 was at the end of November and since dropped to $3,850 in December and January, $3,800 in February and $3,700 in March.

"We deal in a very thinly traded security," Menke says. "You don't have to get many people excited about buying to affect the market."

The market for joint venture deals -- in which shareholders arrange for another grower to raise beets using their shares in a limited partnership -- is also affected. Menke also works on those deals with the related Farmers National Co. He says that since January, the most recent joint venture deals his company has done have ranged from $400 to $425 per share. There has been "adequate demand" for the deals, but not the "fierce competition" during these months.

Prior to the Sugarbeet Institute, there were standing offers for operators to pay $350 to $375 per share for joint ventures, Menke says. Last year at this time, shares were being joint-ventured at $425 to $450 per share.

Mikkel Pates is an agricultural journalist, creating print, online and television stories for Agweek magazine and Agweek TV.
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