By Jim Gransbery, Billings Gazette
Drought in south Asia, hurricanes in the Gulf of Mexico and ethanol production in Brazil are funneling incentives toward Montana-area sugar beet farmers to increase production as wholesale prices for sweetener move up.
At the same time, the cost for the sprinkles over breakfast cereal and coffee are declining. The Western Sugar Cooperative, which is owned by its farmers, wants to add more acres this year in the Billings, Mont., and Lovell, Wyo., areas. Other Montana and Wyoming sugar companies are asking beet growers to up production, too. Beet farming incentives Because of world events, the increased demand is probably not temporary, which gives beet farmers a reason to increase production despite higher costs for fertilizer and fuel.
"Prices are promising," says Tony Zitterkopf, the ag manager for Western Sugar in Billings and Lovell. "The growers can make use of an opportunity." He says the co-op would like to add 3,000 acres of beets between both areas for the 2006 crop, which is planted about April 15. The current refining campaign wrapped up recently. The Billings plant processed 27,000 acres this year and Lovell, 16,500 acres. Zitterkopf says he is looking for new farmers and existing producers that have available land. The Billings factory could handle the increased acreage with ease, says Ken Bennett, the factory manger. With the new slicer and diffuser, "we would fully utilize our capacity," he says. The current campaign will produce 1.7 million hundred-pound bags of sugar.
Acknowledging that other sugar producers are all thinking about increased production because of the world situation, local growers, because they own the company, would see greater profits and stability. Beet farmers get paid for their tonnage and sugar content. Marketing also provides an income because they participate in profits from sale. The wholesale price of sugar in the United States is now in the mid-30-cents-a-pound range.
The Billings factory will celebrate its centennial May 19 with an open house featuring videos, photos, machinery and art tracing the history of the industry and the factory on Billings' south edge. All of Western's factories six in four western states are looking to contract added acres. Inder Mathur, president and CEO of the co-op based in Denver, says sugar has two markets: World and domestic. "Each has its own supply-demand functions," he says. Mathur says the domestic demand has increased because the low carbohydrate diet fad has worn off, the economy has improved and the population has increased. "Last April, May, it became apparent that increased consumption was here to stay," he says.
On the supply side, a strike at Domino Sugar, the hurricanes in Florida and Louisiana and record warm weather that caused beet pile loss, has reduced production across the country for cane and beet farmers, Mathur says. The U.S. beet crops for the past two years have been below average, and reserve inventories have been drawn down. "The dynamics have changed," he says. While wholesale prices in the United States have increased and world spot prices have hit 25-year highs, the cost of sugar at the grocery store has remained fairly constant.
One reason is that the U.S. Department of Agriculture has increased the sugar import quotas three times in the past year. "The flexibility of that policy stabilizes retail prices," Mathur says. "That is a good message. USDA saw the need and moved." Forty-three countries import sugar to the United States each year under the USDA sugar program. Between the import quotas and marketing allotments for U.S. producers, retail prices do not fluctuate much. Also, big buyers of sugar forward contract supplies, so they are getting sugar at lower than current wholesale prices. This has a mitigating effect on retail price, he says. "Sugar is also used as a loss-leader to get customers into the stores." To farmers who stopped growing beets in recent years, Mathur says, "Those who would come back would be welcome."
On the world scene, drought and higher oil prices have pushed up the demand and price for sugar. Brazil, a big exporter of sugar, will use half of its production for ethanol now. The ethanol-for-fuel industry in South America's largest country is in place, getting the ethanol to car owners. Drought in Southeast Asia, especially in Thailand, has shorted world stocks. Tightened supplies in Europe are also a factor. Because of this, the world price of sugar has jumped.
"World sugar at 17 to 18 cents a pound, vs. 6 cents, fundamentally changes sugar economics, and everything you know about it has gone out the window," says Luther Markwart, executive vice president of the American Sugarbeet Growers Association. A week ago, world raw-sugar futures climbed to 19.15 cents a pound, the highest in 25 years. However, 80 percent of the world's production is not traded on a world basis. The remaining 20 percent is offered for sale after producing counties have covered their own needs and foreign export contracts. The world price is known in the sugar trade as the "dump price" because it is the surplus that is dumped into the world market to get rid of it.
Also the price is for the raw product and does not include the costs for shipping and handling of it. Markwart says the food-fuel issues surrounding sugar are undergoing a structural change and 60 percent of the globally produced ethanol comes from sugar. In the future, more of it will go to ethanol production to take the edge off oil consumption. "The beet sugar industry is critical to the food supply chain in the United States," he says. "Our customers are beginning to realize that."
Other regional beet factories also looking are to increase production. At Sidney Sugars, Russ Fullmer says beet farmers for the factory there planted 38,000 to 39,000 acres in 2005. "We'd like 41,000," he says. The plant ended the refining campaign Feb 14, producing 2.4 million hundredweights. Fullmer, ag manager for the plant owned by the American Crystal Sugar Cooperative of Moorhead, Minn., says acreage has been down the past couple of years. "Farmers keep retiring," he says, "and inputs fertilizer and fuel are going up." "The mood here is good" and prices are up because of hard luck for cane producers, he says.