Procedures used in establishing 1991/92-crop loan rates for sugar and minimum support prices for sugarcane and sugarbeets - U.S. Dept. of Agriculture, Economic Research Service report

Situation and Outlook Report: Sugar and Sweetener, Sept, 1991 by Ron Lord

Abstract: Procedures are explained for USDA's calculation of the refined beet sugar loan

rate, regional cane and beet sugar loan rates, and minimum support prices for sugarbeets and

sugarcane.

Keywords: Sugar, sugarbeet, sugarcane, loan rate.

Background

USDA procedures used to calculate the 1991/92-crop national-average beet sugar loan rate and the regional beet and cane sugar loan rates are set forth in this article. Aslo discussed are the procedures used to calculate the minimum sugarcane and sugarbeet prices which processors must pay growers to be eligible to obtain a Commodity Credit Corporation (CCC) nonrecourse loan.(2/) The Food, Agriculture, Conservation and Trade Act of 1990 (the 1990 Act) requires price supports for the 1991/92 through 1995/96 sugarbeet and sugarcane crops. The raw cane sugar support price is not to be less than 18 cents per pound, raw value, and can be adjusted upward on the basis of "such factors as the Secretary determines appropriate, including changes (during the 2 crop years immediately preceding the crop year for which determination is made) in the cost of sugar products, the cost of domestic sugar production, and other circumstances that may adversely affect domestic sugar production". The sugarcane support price provisions are essentially unchanged from the 1985 Farm Act. The 1985 Farm Act required that the price of sugarbeets be supported "through nonrecourse loans at such level as the Secretary determines is fair and reasonable in relation to the loan level for sugarcane". The 1990 Act, however, requires the Secretary to support the price of sugarbeets at a level that "reflects:

1) an amount that bears the same relation to the support level for sugarcane as the weighted average of producer returns for sugarbeets bears to the weighted average of producer returns for sugarcane, expressed on a cents per pound basis for refined beet sugar and raw cane sugar, for the most recent 5-year period for which data are available; plus 2) an amount that covers sugarbeet processor fixed marketing expenses."

Establishing the National Weighted-average Beet Sugar Loan Rate

The calculation of the ratio of sugarbeet to sugarcane grower returns uses the value of the each crop as published by the National Agricultural Statistics Service (NASS) in Crop Values, and the crop year volume of refined beet sugar and raw cane sugar as published in NASS's Crop Production. Sugarbeet producer returns for a particular crop (cents per pound of refined sugar) are found by dividing the value of the crop by the volume of refined sugar produced. The most recent 5-year weighted average is obtained by summing the 1985/86 - 1989/90 crop values and dividing by the sum of the 1985/86 - 1989/90 volumes of refined sugar produced. This yields a 5-year average sugarbeet grower return of 14.84 cents per pound of refined beet sugar (table A-1). A similar calculation for sugarcane growers yields a 1985/86 - 1989/90 weighted-average return of 12.27 cents per pound of raw cane sugar. The sugarbeet-to-sugarcane grower ratio used in calculating the 1991/92 crop beet sugar loan rate is thus 1.209 (14.84 cents per pound refined sugar, divided by 12.27 cents per pound raw value) which rounds to 1.21 or 121 percent. Had a 10-year average been used, as was used for the 1986/87 through 1990/91 crops, the ratio would have been 1.17, or 117 percent, and the beet sugar loan rate would have been 0.72 cents lower. Sugarbeet processor fixed marketing expenses are obtained from data submitted by the processors. From the 1989/90 data, the latest available, a national weighted-average fixed marketing expense of 1.20 cents per pound is calculated, and then two adjustments are made (table A-2). To adjust the fixed marketing expenses from the 1989/90 to 1991/92 crops, the inflation adjustment uses a projection of the Producer Price Index for finished goods (PPI) from 1990 to 1992, which is 3.74 percent. When multiplied by the 1989 value of 1.20 cents, this results in an inflation adjustment increase of 0.045 cents per pound (table A-3). A volume adjustment, necessary since fixed costs will be spread over whatever volume is produced, is made by comparing a forecast of the 1991/92 crop with the actual 1989/90 crop. The forecast of the 1991/92 crop is taken as indicated area harvested of 1.385 million acres, released June 1991 by NASS, multiplied by the latest 3-year average sugar yield of 2.85 tons (raw value) per acre. The resulting figure of 3,947,820 tons is 14.7 percent above the 1989/90 crop of 3,442,000 tons, resulting in a deduction of 0.18 cents per pound. With these two adjustments, projected 1991/92 beet processor fixed marketing expenses are 1.07 cents per pound. The 1991/92 national average beet sugar loan rate is calculated at 18 cents (the national average raw cane sugar loan rate), times the 1.21 ratio, plus 1.07 cents per pound fixed marketing expenses, which yields 22.85 cents per pound (table A-4).

Establishing the Regional Beet Sugar Loan Rates