FARGO, N.D. - American Crystal Sugar Co.’s super-sized crop is helping the farmers who got the high yields, but it’s a tale of two crops - a poor crop in the north and a whopper in the south.
Tom Astrup, a 22-year veteran with American Crystal, made his first appearance as president and CEO, and presented a clinical assessment at the co-op's sophisticated stage-crafted annual meeting Dec. 1 in Fargo, N.D.
A $38 per ton initial estimate for the 2016 crop “does not cut it” for many growers who didn't get a crop, but works much better for farmers in the Crookston, Minn., and Hillsboro, N.D., factory districts that got big crops, he said.
The company is working to process 11.8 million tons, the second largest on record. “We are in a situation where our storage assets will be challenged and our boundaries stretched,” Crystal Chairman Robert Green said. “Hopefully, Mother Nature will bless us with a good old-fashioned cold winter.”
Astrup said the sugar content of the 2016 crop is down as prices for both sugar and beet pulp are down. Sugar is suffering from classic oversupply, while byproducts are suffering with the drop in the price of competing corn feed stocks.
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“We are hoping that the U.S. Department of Agriculture and the Department of Commerce can help put this market back on the rails,” Astrup said. One bright spot is that the Chinese market will be open for beet pulp for animal feed in the coming year.
Consumer trend There has been a steady increase in sugar consumption in the past 10 to 12 years, and only in 2016 did that level out. Per capita sugar consumption declined a little, said Matt Wineinger, president and CEO of United Sugars Inc.
Astrup said consumer preferences are trending toward non-GMO food. “Nevermind that most of them don’t know what a GMO is or why they don’t like it, the consumer always gets what they want,” he said. “I think taking away biotechnology from farmers would be like taking computers away from engineers - scary for all of agriculture, let alone sugar beet producers.”
Brian Baenig, a former chief of staff to Secretary of Agriculture Tom Vilsack, made his first appearance at the meeting as executive vice president of the U.S. Beet Sugar Association.
Baenig said the Donald Trump presidency is so far an unknown for agriculture, and for sugar in particular.
“President Trump’s team will matter a great deal in the farm bill," Baenig said. Bloomberg News recently reported that debt-to-income ratios in farm country is the highest it’s been in three decades, implying a need for farm safety programs in a new farm bill. Some analysts are predicting a 20 percent tumble in farm real estate values by 2018.
Baenig said some farmers were too complacent in the 2014 farm bill, during a time of high commodity prices and record ag exports, and the result was no cotton program and a dairy program that doesn’t work very well.
Consumer concerns Executive Vice President of Global Marketing for Ocean Spray Paul Stajduhar spoke at the meeting. He said Tesco, its largest customer in its largest international market, the United Kingdom, is threatening to take Cranberry Juice Cocktail off the shelf, "despite what consumers might want," unless Ocean Spray can reformulate it to half the sugar it has today. Meanwhile, Mexico is trying to increase the sugar tax.
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"I hate to say it to people in this room, but for us, the overriding environmental concern is sugar," Stajduhar said. He said the company wants an array of products, from traditional forms to diet forms, but the company is reducing sugar content in products.
Ten years ago, an 8-ounce glass of cranberry juice contained 160 calories. The juice moved from high-fructose corn syrup sweetener to sugar, and reformulated it to 120 calories. Now, Ocean Spray is reformulating again to 100 calories.
About 10 percent of Americans who buy Ocean Spray beverages are described as "advocates," because they account for 44 percent of the company's revenues. The company doesn't see a need to go to non-GMO sugar for this group. But the consumers of dried fruit are concerned about it - very much into natural products, and "the more natural the better."
About half of the sugar Ocean Spray buys goes into cranberry beverage business. "Cranberries are extraordinarily tart," he said. "You need to sweeten those somehow. Sugar is really the most flavorful, best way to sweeten cranberry juice.
Kindred co-op Like American Crystal, Ocean Spray is a cooperative. Ocean Spray was established in 1907 and established as a co-op in 1930. In 1949 they joined together with another similar company as Cranberry Canners. There are only 60,000 acres of cranberries grown commercially anywhere in the world.
While American Crystal can cut acreage in times of oversupply, Ocean Spray must accept all production from its members and is consequently dealing with oversupply issues. Cranberry-related products are the No. 1 juice business in the U.S. Juice generally has declined market share by about 2 to 3 percent annually, while Ocean Spray has been increasing 2 to 3 percent, making it 4 percentage points better than the juice category averages. The company has an 18 percent market share. The company sells "Craisins," which includes United Sugars sugar.
Ocean Spray also has about 30 grapefruit growers in the Indian River section of Florida, and the company has a $90 million a year grapefruit business. In North America they have about $1 billion in beverages, plus $300 million in North American Foods, which includes Craisin. The company markets $250 million in branded business internationally. Their ingredients business is growing.
Ocean spray co-op voting is based on patronage, so the votes are dependent on how many barrels of product are delivered. Larger growers have a voice proportionate to the amount of fruit they deliver.
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Cranberry yields have increased, so they've gone from producing about 4.5 million barrels to this fall harvesting 7.6 million barrels. For the past eight- or nine-year period, that's a 5 percent annual increase in supply. Revenues are growing at under 2 percent, "so we have something of a mismatch," Stajduhar said. The company has reformulated products to use a "little more of the cranberry.”
