392 - Prepile Payment System Rewards Quality
Last spring, American Crystal’s Board of Directors authorized a change in the prepile payment system in order to provide a greater incentive to deliver maximum sugar content beets during the prepile period. The specific objectives for the new payment system were:
- Encourage shareholders to deliver the highest sugar content that is possible.
- Provide an adequate premium to ensure that sugarbeets are delivered during prepile harvest.
- Fairly distribute the premium being paid among all shareholders.
We now have one year’s experience behind us with the new payment system. A number of shareholders have asked for information on how the system worked this year and for examples of how it affected their payment.
The examples below show two actual fields from the 2000 crop year. Both fields were harvested at approximately the same time during mid-September. Field A had approximately 56 pounds less deliverable sugar than did Field B. As you can see under the “Payment for Pre-Pile Tons” section, the previous system would have generated a payment of $.89 per ton more for Field A, even though it had less deliverable sugar than Field B. On the other hand, the new system paid Field B $17.72 more per ton than Field A. Clearly, the new system provides a greater incentive to deliver higher sugar content beets during the prepile period.
The calculations in the box show that the revenue per acre for the 2000 crop was very close to the same for beets delivered during pre-pile and stockpile based on RRV averages. The tons per acre are estimates and based on the assumption that yields increase by one ton per week.
Calculation for the daily percentage premium in the new prepile payment system depends on five sets of parameters. The current prepile premium is based on the parameters from the current crop. These are:
- The gross beet payment calculations are used to establish the “base payment per ton” for the prepile system as well as the grower’s daily gross payment for his prepile deliveries. The average gross beet payment for the 2000 crop is $31.80 per ton.
- The average growth of sugar in pounds per day for the prepile period for the calculation of the sugar part of the premium. For the 2000 crop the average growth during prepile was 2.586 pounds of recoverable sugar per day.
- The daily “growth” percentage assigned for the growth part of the premium--for the 2000 crop, 1.15% per day.
- Company average quality for the stockpile period. For the 2000 crop that average was an 18.1% sugar and a 1.3% LTM.
- The difference in recoverable sugar per ton as calculated by the linear regression for prepile and the recoverable sugar per ton as calculated by the linear regression for stockpile. The difference in the two regression lines for the first day of stockpile was 11.97 pounds of sugar for the 2000 crop.
All of the above parameters combine into the daily percentage premium that is applied to the grower’s daily gross beet payment as calculated from the quality of daily deliveries. Below is the graph of the prepile premium percentage for each prepile day for the 2000 crop. The same chart will be recalculated each year depending on that year’s crop results.
Figure 1. Prepile Premium Per Day For 2000