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

Consistent with that for other farm commodities, the concept of location differentials has been adopted for establishing loan rates for sugar. Section 403 of the Agricultural Act of 1949 provides the legislative authority for establishing location differentials. The primary function of location differentials is to equalize differences in freight costs, thereby eliminating an incentive that would otherwise exist for processors who are distant from markets to forfeit sugar to CCC. The regional loan rate was established by adding to or subtracting from the average loan rate the difference between a particular area's freight cost and the national weighted-average freight cost. For example, if the freight cost in a particular beet region is above the weighted average freight for all beet regions, the loan rate for that particular region would be below the average loan rate by the amount which the regional freight cost exceeds the weighted-average freight cost. On the other hand, a lower-than-average freight cost for a particular region would result in a loan rate that is higher than the average. An alternative would have been to include all transportation costs in determining the differential. Since freight is the principal element of transportation, the use of all costs would not have materially affected regional loan rates.

Regional Minimum Support Prices for Sugarbeets

Prices paid for sugarbeets, excluding cooperative growers, are based on the processor's net return, sucrose content of the sugarbeets, and when specified in the contract, sale of byproducts. With the exception of Michigan and Ohio areas, sugarbeet growers do not share in the value of molasses and dried pulp. In establishing regional support prices for sugarbeets, expressed in dollars per net ton, fixed marketing expenses are deducted from regional loan rate to provide a basis for settlement, and a payment is derived from the payment scale in grower/processor contracts (table A-5). This basis for settlement is comparable with the net returns used in determining grower payments when sugar is sold in the marketplace. The payment was based on a 3-year national average sucrose content of 16.19 percent. The national weighted-average support level for 1991/92-crop sugarbeets is $34.67 a net ton. Consistent with grower/processor contracts, growers in Region 1 receive 53.1 percent of total returns from sugar, pulp, and molasses, expressed on the basis of a net ton of sugarbeets received. Accordingly, the support price was based on the basis for settlement of 22.63 cents as pound and the latest 3-year recovery of 241.46 pounds of sugar, which results in a value of $54.64 per net ton. To this is added the pulp and molasses value of $7.94 a net ton, which results in a value of $62.58 per net ton. The grower's share, 53.1 percent, is $33.23. All processors in Region 2 are cooperatives. The procedure for calculating the Region 2 support price is the same as for Region 1, since cooperative growers also share in byproduct credits. The basis for settlement is 21.88 cents a pound, and the latest 3-year sugar recovery is 247.89 pounds, resulting in a value of $54.24 for sugar in the beets. Pulp and molasses values add another $7.12 for a total of $61.36 per ton, and the 53.1 percent grower's share is $32.58 per net ton of sugarbeets.