SUGAR AND SWEETENERS March 25, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- SUGAR AND SWEETENERS Situation and Outlook is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. SSSV21N1. Please note that this release contains only the text of SUGAR AND SWEETENERS--tables and graphics are not included. Subcriptions to the printed version of this report are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #SSS, $22/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Sugar and Sweetener Situation and Outlook Report. Commercial Agriculture Division, Economic Research Service, U.S. Department of Agriculture, SSSV21N1. Contents Page Summary World Sugar Overview Production Consumption Trade Stocks and Prices U.S. Sugar Overview Production Consumption Trade Stocks and Prices Policy. U.S. Corn Sweeteners Production Prices and Costs Consumption and Trade Special Articles: Great Lakes Sugar Industry: Recent Developments and Future Prospects U.S. Sugarbeet Farm Characteristics and Production Costs, 1992 List of Tables Report Coordinator Peter Buzzanell (202) 219-0888 FAX (202) 219-0042 Principal Contributors Peter Buzzanell Ron Lord Nydia Suarez Database Coordinator/Graphics & Table Design Fannye Lockley-Jolly Layout & Text Design Anne E. Pearl Word Processing Betty Barrett Erma McCray Lorie Thomas Approved by the World Agricultural Outlook Board. Summary released March 19, 1996. The next Sugar and Sweetener Situation and Outlook report is scheduled for release on June 19, 1996. Text and summaries may be accessed electronically. For details on electronic access, call ERS Customer Service (202) 219-0515. Summary Sugar Consumption Robust World sugar production and consumption for 1995/96 are forecast at 119 and 118.1 million metric tons, raw value, respectively. The implied surplus has shrunk from December's estimate of 1.3 million to about 900,000 tons. The apparent recovery in consumption is supporting prices, which have remained relatively firm despite the big increase in production. World sugar consumption is estimated at a record 118.1 million tons, 1.5 million higher than December. Countries in which consumption is forecast up strongly from last year include the Russian Federation, Brazil, China, the United States, the Philippines, and Indonesia. World consumption is forecast to rise a robust 3.5 percent, compared with an average of only 1 percent for the previous 5 years. The rapid declines in sugar consumption associated with the economic downturns in the countries of the former Soviet Union and Central Europe appear to have ceased, and sugar consumption in most of those countries has either stabilized or is starting to rise. The world sugar production estimate is up 2.7 percent over last year and tops the previous record of 116.5 million tons in 1991/92. The estimate is up 1 million tons from December, of which 600,000 tons are from Brazil. Other countries with higher production forecasts since December include China, up 400,000; India, 350,000; Thailand, 200,000; Russian Federation, 150,000; Mexico and Argentina, 90,000 each; and Australia, 67,000 tons. Forecasts have been lowered since December for Pakistan, down 320,000 tons; the Philippines and Ukraine, 200,000 each; the European Union (EU), 150,000; and Turkey and Indonesia, 100,000 each. Over the last 5 years, world production has grown an average 1 percent a year. The forecast world ending stocks-to-use ratio is 17.7 percent, up only marginally from 17.6 percent for 1994/95. The forecast is well below the 1992/93 stocks-to-use ratio of 20.7 percent, a time when the world raw sugar price averaged below 10 cents a pound. The world spot sugar price has averaged 12.2 cents a pound between September and February of the current season. U.S. sugar production for fiscal 1995/96 (October-September) is forecast at 7.5 million short tons, raw value, down 5.4 percent from the record production of 1994/95. U.S. sugarbeet production is forecast at 29.5 million tons, down about 8 percent from the year before. Sugarbeet area harvested is forecast at 1.42 million acres, down 1.2 percent. Sugarbeet yield is forecast at 19.7 tons per acre, down from Decembers estimated 20.3 tons and last year's 22.2 tons. The recovery rate of beet sugar from sugarbeets is low this year due in part to lower quality sugarbeets, but also poor weather in the fall harvest and winter grinding season, which causes deterioration of beets stored in piles. Beet sugar production is forecast at 4 million tons, raw value, down 100,000 tons from December and almost 500,000 tons (11 percent) lower than last year. U.S. cane sugar production is forecast at 3.5 million tons, up 110,000 tons from the December forecast and about 70,000 tons higher than last year. The estimate for Florida was recently raised to 1.8 million tons because of better-than-average weather during the harvest season which runs until late March. Floridas acreage harvested for sugar is up 4,000 acres from last year at 427,000 acres, and sugarcane yield was up slightly to 34 net tons per acre. Louisiana produced another record crop of 1.06 million tons, 40,000 tons higher than last years record 1.02 million and up 80,000 tons from December's estimate. Acreage harvested in Louisiana jumped 16,000 acres (2 percent) from a year ago to a record 368,000 acres, and yield was marginally higher at 25.4 net tons per acre. Texas is forecast to produce 140,000 tons, the same as December's estimate and down slightly from last years record 147,000 tons. The U.S. sugar consumption forecast is 9.52 million tons, up 100,000 from December's estimate and up 180,000 tons from last year. This would represent an increase in consumption of 2 percent. Last year consumption was flat, but the trend rate of growth over the last 5 years has been about 1.6 percent. Deliveries in October-January of this year have been very strong, but may have been boosted by the desire of users to obtain quantities ahead of announced price increases. U.S. raw cane sugar prices averaged 22.68 cents a pound in February (Contract No. 14, nearby futures). The prices for July and September 1996 futures have been above 23 cents a pound since early February 1996. The quarterly average raw sugar price was above year-earlier levels for all 4 quarters of calendar 1995, and the calendar year average price of 22.96 cents was almost 1 cent higher than 1994. As the prospective size of the current beet sugar crop has fallen progressively since last summer, users have turned to cane refiners, tightening the cane sugar market. The tariff-rate import quota (TRQ) for raw cane sugar was increased in November 1995 and January 1996, by a combined 772,000 short tons. The TRQ for refined sugar is unchanged at 24,251 tons. U. S. refined sugar prices have risen in recent months. The wholesale beet sugar price (Midwest markets, fob factory) averaged 29 cents a pound in February--up 3.5 cents from February 1995--and 29.50 cents for the first 2 weeks of March. The last time refined beet sugar prices were above 29 cents was 1990, when the annual average was 29.97 cents a pound. When there is a large beet crop, refined sugar prices can be pressured by supplies which exceed storage capacity, but this years reduced beet sugar crop has resulted in a situation in which some beet processors are having difficulty meeting sales commitments and are filling in with refined cane sugar. Additional nearby uncertainty about U.S. sugar supplies comes from the import side. There are some countries, allocated a share of the U.S. TRQ, whose surplus are insufficient to fill their allocations. Usually, these countries fill their U.S. allocations and import from the world market for some of their domestic needs. Last year, the United States suspended and reallocated some of the TRQ from countries that could not fill their allocations to other countries with sufficient supplies. U.S. corn sweetener production in fiscal 1995/96 (October/September) is forecast to total 12.2 million tons, dry basis, up 3.9 percent. This forecast reflects expanded industry capacity and recent growth trends. High fructose corn syrup (HFCS) production is forecast at 8.15 million tons, dry basis, up 4.3 percent from 1994/95 and accounting for two-thirds of expected total corn sweetener production for this year. For fiscal 1994/95, HFCS production totaled 7.8 million tons, up 4.8 percent from the corresponding period in 1993/94. Glucose syrup and dextrose are the other primary corn sweeteners produced by the U.S. corn wet milling industry. Combined glucose and dextrose production for fiscal 1995/96 is forecast at 4.0 million tons. This is up 125,000 tons from the fiscal 1994/95 estimate and accounts for about a third of total expected corn sweetener production during fiscal 1995/96. USDA's 1995/96 (September/August) U.S. corn crop is forecast down 27 percent from the 1994/95 record of 10.10 billion bushels due to reduced acres harvested and lower yields reflecting weather problems in several States. The tight supply has resulted in strong corn prices. The U.S. corn-wet milling industry is expected to use over 700 million bushels of corn to produce corn sweeteners (HFCS, crystalline fructose, glucose syrup, and dextrose) this season. This represents almost 10 percent of the corn crop currently forecast at 7.37 billion bushels. This issue of the Sugar and Sweetener Situation and Outlook report also contains two special articles entitled Great Lakes Beet Sugar Industry: Recent Developments and Future Prospects, and U.S. Sugarbeet Farm Characteristics and Production Costs, 1992. Printed copies of the report should be available in about 1 week. For further information, contact Ron Lord (202) 219-1269. Text of the full report will also be available electronically. For details, call (202) 219-0515. World Sugar Overview World sugar production for 1995/96 is estimated at 119.0 million metric tons, raw value, higher than the forecast of world consumption, 118.1 million.1/ The 0.9 million ton surplus projected for 1995/96, combined with a surplus for 1994/95 of 1.94 million tons, permits stocks to rebuild after sugar deficits the previous 2 years . The world spot price for raw cane sugar was 12.97 cents per pound in February 1996, 1.5 cents less than the average price of 14.43 cents a pound in February 1995. 1/ In this report, world sugar estimates are given in metric tons (2,204.6 pounds or 1,000 kilograms). U.S. estimates are presented in short tons equal to 2,000 pounds or 907.185 kilograms. All estimates are expressed in raw value, unless otherwise specified. It takes 1.07 tons of cane sugar, raw value, to produce 1.0 ton of refined sugar. For beet sugar the factor is 1.07 tons raw value sugar to 1.0 tons refined sugar in the United States, and 1.087 tons in other countries. Production World sugar production this year is expected to be 2.5 percent above last year's revised production of 115.8 million metric tons, raw value, and up 0.7 percent from the December forecast. Production forecasts for 1995/96 have increased from December for a number of countries including Mexico, Guatemala, Brazil, Argentina, Thailand, China, India, Australia, and the Russian Federation. However, production forecasts are down for other countries, including France, Germany, Ukraine, Turkey, Indonesia, Pakistan, Philippines, and Fiji. Production prospects in selected countries: Mexico- Good weather conditions and more area for harvest have pushed the forecast for Mexican sugar production to another record of 4.57 million tons, slightly above last years record of 4.56 million. Area harvested is up almost 5 percent. Despite losing 2 weeks of harvest in late 1995 due to a strike by sugarcane farmers, the mills are projected to have time to grind the entire crop, unless poor weather disrupts the campaign. Brazil - The forecast has been raised 600,000 tons since December to a record 13.6 million. Alcohol production, which utilizes over half of Brazil's sugarcane, has declined in popularity with Brazilian mills, which find sugar production (whether for the internal market or for export) more profitable. If the world sugar price falls next year, or government policy changes, alcohol could regain some of its appeal. European Union (EU) - The sugar production estimate has been lowered by about 150,000 tons since December to 16.86 million. Production in France has been lowered by 35,000 tons since December to 4.57 million. A hot and sunny summer, and a dry fall, contributed to relatively high sugarbeet output, but the low rainfall resulted in sugar content being lower than the year before. In Germany, output is forecast down 50,000 tons from December to 4.15 million. Russia - Forecast sugar output is up 150,000 tons from December to 2.05 million. Favorable weather conditions last fall and high sugarbeet yields boosted production. China- Production is forecast at 6.9 million tons, up 400,000 from December and 900,000 from a year ago. Some factories in China have had difficulty paying farmers the government-mandated minimum prices for cane. In spite of the higher production prospects this year, China is likely to import substantial quantities, especially in the second half of the year after domestic supplies have been marketed. Thailand - The forecast for Thai sugar production is 5.9 million tons, up 200,000 from December. Even though flooding was a problem, sugarcane per hectare benefitted, since cane in Thailand is largely rainfed and not irrigated. Production in Thailand has soared in recent years, with current output about double production of 10 years ago. But there is room for further expansion, as Thailand is a relatively low-cost producer. Thailand uses about 1.6 million tons internally and exports the rest, receiving a premium price only for its exports to the United States. Thailands share of the current U.S. TRQ is 25,000 tons, about half of 1 percent of Thailands forecast exports of 4.2 million tons. Pakistan- Production is forecast down 320,000 tons from December to 2.9 million tons. The drop in production could lead to import requirements, since Pakistan consumes about 3 million tons annually. The decline in the forecast is due to a 3-percent decrease in area and diversion of cane to manufacture non- centrifugal sugar. Pakistan produces about 20,000 tons of sugar from beets, and the rest from cane. Philippines - The outlook has deteriorated since December, largely due to typhoons last October and November. Production is forecast at 1.6 million tons, 200,000 tons below the December forecast and 50,000 tons below last years poor crop. In early 1996, domestic prices were running more than twice the world price, but imports have brought prices down. In the 1970's, the Philippines regularly produced over 2.5 million tons and exported a million tons or more per year. Ukraine - Sugar production is forecast at 3.8 million tons, down 200,000 from Decembers estimate but up 200,000 from last year. As a result, Ukraine is expected to be able to raise exports by 100,000 tons to 1.8 million. Many of the factories in Ukraine are idle, and the industry is operating well below peak efficiency due to poor maintenance and low sugarbeet production. Consumption Global sugar consumption is estimated to increase 3.5 percent above the 1994/95 consumption of 114.5 million tons to 118.1 million. Sugar consumption is expected to increase in the lesser developed areas of Central and South America, Africa, the Middle East, and Asia. Consumption is increasing as sugar prices in many countries fall, population and income increase, and more processed foods and beverages containing sugar reach consumers in these areas. Sugar consumption is expected to be unchanged from 1994/95 in the formerly communist countries of Eastern Europe but considerably below consumption in the late 1980's due to economic instability and higher retail sugar prices. Asias sugar consumption for 1995/96 is forecast at a record 40 million tons, 34 percent of the global total and up one-third since 1986/87. Trade The 1995/96 world sugar trade forecast is revised upward to 32.18 million tons, up 6 percent from the year before. Increased export prospects in Brazil, Ukraine, Thailand, and Cuba account for most of the higher 1995/96 forecast, almost 1.9 million tons more than revised 1994/95 world trade. Increased sugar imports in the United States, Russia, and the Philippines will be a major factor in the anticipated increase in world sugar trade in 1995/96. The U.S. TRQ for raw cane sugar was increased in November and January by a combined 700,000 metric tons, and the TRQ now stands at 1.8 million metric tons, about 700,000 tons above last year. The Philippines, usually a net exporter, is expected to import 700,000 tons this year, in part to offset exports which will be made to the United States under the U.S. TRQ. Russia is projected to import 3.1 million tons, up 100,000 from the December estimate and 400,000 tons more than last year. China will continue to be a major importer, now estimated to need 1.6 million tons, down from last years imports of 3.1 million tons. The structure of world sugar trade continues to be highly concentrated on the export side compared with imports. The top six exporters for 1990/91-1994/95--EU, Australia, Brazil, Thailand, Cuba, and Ukraine--accounted for about 70 percent of world exports. For 1995/96, this group is projected to account for about 72 percent of world trade. The top six importers over 1990/91-1994/95--Russian Federation, EU, China, United States, Japan, and South Korea--accounted for about 40 percent of global imports. For 1995/96, this group accounts for about 38 percent. Even though it is on the list of top importers, the EU is one of the worlds largest exporters, and is a net exporter. Stocks and Prices Ending stocks for 1995/96 are forecast at 20.9 million metric tons raw value, the highest since 1992/93. The global stocks-to- use ratio is expected to be 17.7 percent in 1995/96, up from 17.6 last year and 16.4 2 years ago. The apparent recovery in consumption is supporting prices, which have remained relatively firm despite the big increases in production. Other short run factors supporting the world price have been delayed harvest in Cuba, the increases in November and January of the U.S. TRQ, unusually high import demand in countries such as the Philippines and Indonesia, and the uncertain situations in China and Pakistan. Begin Box BRAZIL'S SUGAR INDUSTRY by Chris Bolling and Nydia R. Suarez 1/ Brazil is among the world leaders in production of sugarcane, sugar, and ethanol (fuel alcohol), and in sugar consumption and exports. In addition, it is among the most efficient of all major sugar producers and its sugar export products are diverse. Since Brazil can produce either sugar or ethanol from sugarcane, and only about 40 percent of its cane production is ground for sugar, it is one of the few countries that can adjust sugar production rapidly to potential world sugar shortfalls and high international sugar prices. 1/ The authors are agricultural economists in the Commercial Agriculture Division of the Economic Research Service. Brazil has tripled sugarcane production since the mid-1970's, largely by expanding acreage. It has also expanded milling capacity and ethanol distilleries. Brazil is consistently among the worlds top three sugar producers, even though it uses only two-fifths of its sugarcane for sugar. Sugar production climbed from 8.3 million tons raw value in the mid-1980's to a record 12.4 million tons in 1994/95, and is expected to reach 13.6 million tons in 1995/96. Brazil has about 370 processing facilities to produce sugar and/or ethanol from sugarcane. About 25 produce only sugar, about 145 produce only fuel alcohol, and 200 produce both. Because Brazils production of sugarcane is so large, even marginal shifts between ethanol and sugar have significant effects on world sugar prices. Ethanol production from sugarcane averages 11.5 to 12.5 billion liters per year, making Brazil the worlds leader. 2/ About 12 billion liters are forecast for 1995/96. 2/ The United States is the world's second largest ethanol producer behind Brazil. Production is from corn and it totaled about 1.35 billion gallons (5.1 billion liters) in 1994/95. Brazil has two distinct sugar producing regions--the Center-South and the North-Northeast--with important differences in agronomic and government policy orientation. The Center-South region is dominated by the state of Sao Paulo, which alone accounts for 60 percent of the countrys sugarcane production. This region supplies three-quarters of the countrys cane, over 70 percent of the sugar output, and approximately 90 percent of the ethanol. The harvest season is normally May through November, although cane cutting in some years has begun in mid-April to ease tight ethanol supply situations. The cane area is generally located on gently rolling, highly productive land readily adaptable to mechanization. Sugar produced in the Center-South was mostly used domestically until the early 1990's. The recent growth in Brazils sugar production and exports has come from this region, where sugar production has expanded more than 4 million tons since 1990/91. The Brazilian governments freeing of sugar prices while still controlling ethanol prices has made it more profitable for Center-South producers and refiners to produce sugar in these recent years of relatively high world sugar prices. The government petroleum company has passed on the burden of storage costs to the ethanol distillers, increasing costs for producers. In 1993/94, sugar exports from the Center-South exceeded exports from the Northeast for the first time in recent history. The North-Northeast accounts for less than 20 percent of Brazils sugarcane production, approximately 25 to 30 percent of the countrys sugar output, and about 10 percent of its ethanol. The states of Pernambuco and Alagoas dominate production, accounting for 80 percent of regional sugar and ethanol production. The harvest season is normally September through April and because of the hilly terrain and poorer soils, production in this region is less mechanized than in the Center-South. Both field and factory costs in this region are higher than in the Center-South. In the past, production incentives such as below market interest rate production loans were also geared toward the Northeast. All the sugar that the United States imports from Brazil under the TRQ comes from the North-Northeastern region via the ports of Recife and Maceio, but the U.S. TRQ allocation is only a small part of Brazil's total sugar exports. Sugar consumption in Brazil is the highest in Latin America and the fifth highest in the world. About 65 percent of Brazils sugar production is used for domestic consumption. Domestic sugar consumption for 1995/96 is forecast at 8.3 million tons, and is rising. Per capita consumption averages about 45-50 kilograms, compared to a world average of 20 kilograms. Because of the importance of sugar in the national diet, Brazilian governments have generally given priority to ensuring that domestic production is sufficient to cover consumption needs. Nearly half of the sugar is used in direct human consumption, and the rest in the manufacturing of soft drinks, confectionery, and other food products. Brazil's sugar and sugar product exports were valued at $1.0 billion in 1994 and $1.8 billion in 1995. Export earnings from sugar have been important to the growing economy, and especially to the poorer Northeast region. While sugar exports are of secondary importance to domestic needs, Brazil has consistently ranked among the worlds top five sugar exporters. According to USDA data, Brazil exported an average of 2.2 million tons of sugar annually from the mid-1970's to the mid-1980's, with record sales of 3.1 million tons in 1984 accounting for 11 percent of world exports. However, exports fell to less than 1 million tons in 1989, reflecting increased domestic demand and sluggish output. Exports rebounded in 1993 and 1994. In recent years, Brazil, like Australia, benefited from Cuba's inability to supply sugar to world markets. Brazil's exports are forecast at a record 5.0 million tons in 1995/96. Brazil exports sugar to over 50 countries, with less than 10 percent to the United States. However, Brazil has the second largest allocation under the U.S. sugar TRQ system after the Dominican Republic. While Brazil has maintained its traditional position as a leading raw sugar supplier, it also exports crystal sugar (plantation white) and refined sugar. End Box U.S. Sugar Overview Higher Ending Stocks, Supplies Forecast U.S. supplies of sugar in fiscal 1995/96 (October-September) are expected to increase 2.7 percent from fiscal 1994/95. The increase in authorized TRQ imports is expected to offset a 427,000-ton decrease in domestic production and lower beginning stocks. For fiscal 1995/96, total U.S. sugar output is down from the previous year due largely to weather problems in sugarbeet areas. Domestic beet sugar production in 1995/96 is forecast to decline to 4 million tons, some 493,000 tons below last years record output of 4.49 million tons, raw value, due partly to excess rain in the spring and fall and early freezes in some northern areas. U.S. cane sugar production for 1995/96 is up slightly from last year, aided by a record crop in Louisiana and an above-average crop forecast for Florida, the largest sugarcane growing State. USDA raised the TRQ for raw sugar imports in November 1995 and again in January 1996, by a combined 772,000 short tons, raw value, pushing up the total TRQ for the current fiscal year to just over 2 million tons--well above the statutory minimum of 1.25 million tons. No significant shortfall in TRQ arrivals is anticipated because of the availability of reallocation. Domestic sugar prices for refined sugar rose in late 1995 in response to the reduced beet sugar crop, and have continued to rise into February and March, despite USDA's allowance of greater sugar imports. The wholesale beet sugar price (Midwest markets, fob factory) averaged 29 cents a pound in February--up 3.5 cents from February 1995-- and 29.50 cents for the first 2 weeks of March. Raw cane sugar prices (nearby futures, New York Contract No. 14) averaged 22.6 cents a pound in early March 1996, compared with 22.5 cents last year. Production Beet Sugar Production Forecast Lower U.S. sugar production is expected to be down 5.4 percent in fiscal 1995/96 to 7.5 million tons from the record production of 7.93 million in fiscal 1994/95. According to USDAs Sweetener Market Data report, 3.98 million tons were produced during the first quarter of the new fiscal year (October-December), 53 percent of forecast production. For fiscal 1994/95, first quarter production totaled 3.93 million tons or 50 percent of the years production. The higher share of the crop forecast produced in this seasons first quarter reflects a reduced level of total output, especially for beet sugar. Beet sugar production for fiscal 1995/96 is forecast at 4.0 million tons, down 11 percent from the previous year. U.S. sugarbeet harvested acreage is down 2 percent from 1.44 million acres last season to 1.41 million acres in fiscal 1995/96. Sugarbeet yields are expected to fall by 11.3 percent from the fiscal 1994/95 average of 22.2 short tons per acre to 19.7 short tons per acre for this season due to poor weather. Sugar recovery rates are expected to be below trend for the second year in a row. Beet sugar recovery rates, which have been trending upward over the long run, were considerably below trend last year because of the loss of sugar in beet storage piles due to the extended slicing period. The expected sugar recovery rate for fiscal 1995/96 is still below trend because of poor late season growing weather in the Midwest and beet damage in storage piles caused by disease. Beet sugar production for the first quarter of fiscal 1995/96 totaled 1.99 million tons versus 2.12 million tons for the corresponding period a year earlier, 49.1 percent of the expected total for the year, compared with 47.1 percent in 1994/95, and 48.5 percent for the most recent 3-year average (figure 1). The beet sugar market is tighter in the short run than would appear from fiscal year aggregate supply numbers. The forecast for beet sugar production has fallen 450,000 tons from the September estimate. Much, if not most, of the expected fiscal 1995/96 beet sugar production was contracted for sale before the fall harvest. The decrease in production forecasts disrupted beet processors marketing plans and left several with considerably less uncontracted sugar than they expected. In addition, some beet sugar processors appear to have over contracted early on and are now pulling out of the market, trying to purchase sugar from other processors, and attempting to renegotiate contracts. Cane Sugar Production Forecast Raised U.S. raw cane sugar production is expected to rise to 3.50 million tons in fiscal 1995/96, an increase of 1.9 percent above the 3.43 million produced last season (figure 2). Since September, the forecast for 1995/96 has been raised 7.7 percent or 250,000 tons largely reflecting record production in Louisiana and better prospects for Florida. For the first quarter of fiscal 1995/96, cane sugar production totaled 1.99 million tons, up nearly 10 percent from the year before and accounting for 57 percent of expected production. This contrasts with production for October-December 1994 which totaled 1.81 million tons, 53 percent of the total for the fiscal year. Developments in the various cane sugar producing States are as follows: o Louisiana. Because of its short growing season, Louisianas annual sugarcane harvest and processing season is concentrated in the October-December period (figure 3). For 1995/96, a record 400,000 acres of sugarcane were harvested, 368,000 acres for sugar and 32,000 acres for seed cane. Acreage in sugarcane has been expanding in Louisiana, reflecting cane's economic attractiveness compared with alternative crops such as soybeans and rice, expanded milling capacity, and incentives provided by some mills to encourage production outside of traditional growing areas. This season, excellent growing and harvesting conditions led to record yields of 25.4 tons per acre, 4.1 percent above last year, and 8.1 percent above the most recent 3-year average. Total tonnage harvested for sugar was 9.35 million tons, 758,000 tons above the 1994/95 record. Recovery rates, estimated at 11.23 percent, were off somewhat from last year but on par with the most recent 3-year average. Sugar production was 1.06 million tons. Over the last 10 years, Louisiana has experienced the largest expansion in sugarcane acreage of any producing State, with area rising 63 percent over the decade. In that decade, production of sugar doubled. Some of Louisianas area expansion has been northward into soybean-growing areas, and some expansion southwest into rice-growing areas. However, the possibility of freezes limit northward expansion, and costs for transporting sugarcane to the mills will limit area expansion both north and southwest. Many of the 19 sugarcane processing mills in Louisiana are considering consolidation, and two of the mills have been purchased by a refining company. o Florida. For 1995/96, sugarcane harvested for sugar is estimated at 427,000 acres, and for seed, 18,000 acres. This seasons area for sugar is up slightly from last year and coupled with somewhat higher yields, 34.0 tons per acre, is expected to provide 14.52 million tons for processing, up 1.6 percent from the most recent 3-year average. Sugar production is forecast at 1.8 million tons, up 4.3 percent from last year. For the first quarter of the fiscal year, 802,000 tons of sugar were produced, up 27 percent from the weather delayed 1994/95 crop and the highest first-quarter total since 1991. The first quarter output represents 44.5 percent of expected production and contrasts with 41.0 percent for the previous 3-year average. The largest share of production comes in the January-March quarter with only a small amount of new crop sugar produced in April (figure 4). In Florida, sugarcane acreage harvested for sugar has expanded 11 percent over the last 10 years, although acreage has been relatively constant since 1991. Further expansion is limited because of the lack of suitable land near Floridas seven mills for growing sugarcane. Most of the sugarcane in Florida is grown by the processing companies, although there is one cooperative mill with 55 grower-members and several dozen other independent growers. A debate over how to restore the Florida Everglades has been ongoing, with potential implications for Floridas sugar industry. In early 1994, the Florida legislature passed the "Everglades Forever Act." Under this law, Florida sugarcane growers are paying fees of about $11 million a year for up to 20 years. This money, along with funds from other sources, will be used to purchase and construct storm water treatment areas (STAs) as part of attempts to improve the quality of water which flows south out of sugar areas towards the Everglades National Park. Vice President Gore announced an Administration plan in February to double proposed Federal spending for Everglades restoration efforts to $1.5 billion over the next 7 years, including acquisition of about 126,000 acres of land now used primarily for sugarcane. To partially fund the land acquisition, the White House plan includes imposing an assessment of 1 cent a pound on sugar produced in Florida for the next 7 years, raising approximately $35 million a year. The proposal also includes additional Federal appropriations of $100 million a year for 4 years for land acquisition. The Senate and House recently passed farm legislation with provisions to provide Federal funds to the Interior Department to conduct restoration activities in the Everglades ecosystem, which may include acquiring private acreage of about 52,000 acres (known as the Talisman tract) by December 31, 1998. The House bill would provide $210 million, the Senate bill $200 million. o Hawaii USDA's production forecast for Hawaii is 460,000 tons, down 7 percent from fiscal 1994/95 and 26 percent below the most recent 3-year average. For the first quarter of fiscal 1995/96, Hawaiis cane sugar production totaled 82,000 tons, 17.9 percent of the production forecast for the year. Hawaii harvests and produces cane sugar every month of the year, but the October- December and January-March quarters are the weakest production months, especially in recent years (figure 5). For example, last year the October-March half of the year accounted for only 27 percent of production, while April-June and July-September accounted for 34 and 39 percent, respectively. This production cycle makes an early critique of the forecast for the fiscal year difficult. In contrast to the other U.S. sugarcane producing States, Hawaii has experienced a dramatic decline in area harvested for sugarcane over the last decade, with acreage falling a steep 45 percent, from 83,000 acres in calendar 1985 to 46,000 in 1995. During this period, the least efficient operations have been closing down, and two more mills are scheduled to close in 1996, leaving six mills owned by three Hawaiis remaining small, independent growers ceased delivering cane to mills. Hawaii faces relatively high costs for labor and land, and incurs higher transportation costs for moving its raw sugar to a refinery than do the cane producing States on the mainland. Illustrative of the structural changes in the size and composition of Hawaiis cane sugar industry is production by island. In calendar 1986, the last year Hawaiis industry produced over 1 million tons (1.04 million), the island of Hawaii accounted for 32 percent, (329,170 tons); Maui 39 percent, (302,839); Kauai 23 percent, (241,086 tons); and Oahu 16 percent, (169,357 tons). In calendar 1995, production dipped under a half million tons to 492,346 tons. The island of Hawaii accounted for 47,387 tons, 10 percent of the total. With the closing of additional mills in 1996, production will cease on the island of Hawaii. Oahus production was just 80,582 tons in 1995, 16 percent of the State total and like the Hawaii island, all production will cease on Oahu in 1996. For both Maui and Kauai, 1995 production at 229,366 tons and 135,011 tons, respectively, is also down considerably from 1986, but their shares of State production have grown to 47 and 27 percent, respectively. o Texas Cane sugar production, concentrated in the Lower Rio Grande Valley, for 1995/96 is forecast at 140,000 tons, comparable with the 3-year average. Sugarcane area harvested is estimated at 42,300 acres, 41,300 acres for sugar and 1,000 acres for seed cane. Yields this season have improved, forecast at 33.4 tons per acre, up 6 percent from last year, but this has been largely offset by expected lower recovery rates. Acreage harvested for sugarcane in Texas has increased about 30 percent over the last 10 years. Texas has one cooperative mill, owned by about 100 growers. The location in southern Texas is relatively safe from freezing weather, but the area is prone to rain, causing temporary shutdowns of the factory during the processing season. Periodic shutdowns can significantly raise costs, and in addition, problems with diseases and pests require expensive chemical treatments. Texas production normally runs from November through early April (figure 6). Consumption Sugar Use Levels Rise Slowly USDA has raised the U.S. sugar consumption forecast for fiscal 1995/96 to 9.52 million tons, an increase of 2 percent. This is based on sugar deliveries for domestic food and beverage use of 9.43 million tons and transfers to sugar-containing products for export under the re-export program of 80,000 tons and transfers to polyhdric alcohol producers of 14,000 tons. The projected rate of growth in sugar deliveries for domestic food and beverage use is also 2.0 percent. The recent year-to-year increase in deliveries peaked in 1989/90 at 3.1 percent. Last year deliveries were almost flat, but some processors sold sugar in September 1994 that would normally have been delivered later in anticipation of domestic marketing allotments. Sugar deliveries for the first 4 months (October-January) of fiscal 1995/96 totaled 3.08 million tons, 32.36 percent of the projected total for the year. Over the past 5 years, October- January deliveries averaged 32.6 percent of the total. The breakdown of deliveries between beet and cane sugar shows beet sugar at 1.13 million tons for the October-December quarter, 47 percent of the total for domestic human consumption; cane sugar at 1.22 million, 51 percent; and deliveries from importers direct consumption 53,000 tons, the remaining 2 percent. For fiscal 1994/95 total deliveries for domestic consumption of beet and cane sugar were 4.28 and 4.88 million tons, respectively. Domestic marketing allotments for beet and cane sugar were in force for all of fiscal 1994/95. Regional distribution of sugar deliveries is provided in table 22. Of the 2.2 million tons of refined sugar marketed in the United States during October-December 1995, 726,000 tons or 33 percent was delivered in the North-Central region, followed by 707,000 tons or 32 percent to the South. The high concentration of deliveries in the North-Central States is explained in large part by the concentration of manufacturers of sugar-containing processed foods in the region as well as sugar-resellers. Sugar deliveries to the South continue to expand reflecting the regional growth in food processing industries and non-industrial outlets for sugar to service the regions growing population. The distribution of sugar deliveries by type of user provides additional information on the structure of demand. Of the 2.2 million tons of sugar deliveries in the October-December quarter of 1995, 1.13 million went to industrial users and 1.02 million to non-industrial users (table 23). For the industrial users, the bakery and cereal industry took 458,000 tons, refined, 40 percent of the industrial total and the confectionery industry took 345,000 tons or 30 percent. Deliveries to both key industrial users were off from the July-September quarter, by 11 and 7 percent, respectively. For fiscal 1994/95, total deliveries to the bakery and cereal industry were 1.88 million tons, refined, compared with 1.94 million the previous year. Confectionery deliveries totaled 1.34 million tons in 1994/95 compared with 1.33 million the previous year. Growth in sugar demand by these leading industrial users has underpinned the growth in overall use in the United States in recent years. In the non-industrial user group, the largest categories are the wholesale growers, jobbers and sugar dealers which in recent years have accounted for nearly 60 percent of the category. The second group in importance is retail grocers and chain stores which together account for about one-third of the non-industrial user group. For October-December 1995, sugar deliveries to wholesale grocers, jobbers and dealers totaled 571,000 tons refined, up 4.6 percent from the corresponding quarter in 1994, but 4.7 percent below the July-September quarter. Deliveries to retail growers and chain stores were up 4.1 percent from October- December 1994, and 18 percent from July-September. For fiscal 1994/95, deliveries to wholesale grocers, etc. totaled 2.15 million tons, compared with 2.03 million the previous year, up 5.9 percent. Deliveries to retail grocers and chain stores in fiscal 1994/95 totaled 1.22 million tons, down 3.2 percent. Deliveries of sugar by type of package provides another view of the changing structure of the U.S. sugar market. Of sugar deliveries in October-December 1995, 925,000 tons or 42 percent were shipped in bulk, 757,000 tons or 34 percent in consumer-size packages of less than 50 pounds, and 517,000 tons or 24 percent in industrial packages of 50 pounds or more. For fiscal 1994/95, total deliveries of domestically processed sugar was 9.26 million tons, raw value, comparable to the year before. Bulk deliveries (unpacked) totaled 3.62 million, slightly higher than 1993/94 and 39 percent of the total. The biggest change came in deliveries of consumer-size and institutional packages (less than 50 pounds) which totaled 2.7 million, up 7.8 percent from 1993/94. In contrast, deliveries of industrial packaged (50 pounds or more) declined 11.3 percent in 1994/95 to 1.93 million tons. In addition, Sweetener Market Data reported shipments of liquid sugar (on a sugar-solids basis) totaled 876,000 tons in fiscal 1994/95, 2 percent below the year before and accounted for 9.5 percent of deliveries of domestically processed sugar. The remaining share of total deliveries is accounted for by 14,000 tons of other sugars including edible molasses, sugar syrup, and cane syrup. Trade TRQ Raised U.S. sugar imports are expected to increase from 1.83 million tons in fiscal 1994/95 to 2.69 million tons in fiscal 1995/96. Imports under the TRQ are expected to be up 38.1 percent to 1.945 million tons. After the TRQ was initially set at the minimum U.S. commitment to the World Trade Organization (WTO), 1.256 million tons, USDA announced an increase of 330,693 short tons in November 1995, and another increase of 440,924 tons in January 1996. The import estimate is based on the expectation that virtually all sugar permitted to be imported under the TRQ will be imported. USDA reallocated expected shortfalls 3 times last summer to reduce the TRQ shortfall to 28,600 STRV for the 3-year period that ended September 30, 1995. Imports not under the TRQ are expected to be up from 289,000 tons in fiscal 1994/95 to 745,000 tons in this year. Almost all of these imports, 730,000 tons, are expected under the re-export programs. Imports under the programs for fiscal 1995/96 are expected to increase because of trading by U.S. cane refiners to take advantage of differences between the nearby (spot) and the futures prices in the world markets. Last year cane refiners exported 305,000 tons more sugar, as refined or in sugar- containing products, than they imported under the re-export programs. To do this, they had to export some domestic cane sugar. The world sugar spot price in March 1995 was considerably above the March 1996 futures contract price, permitting cane refiners to sell domestic sugar into the world market for a loss that would be more than made up when they imported the cheaper sugar off the world market duty-free in spring 1996. At the end of 1994/95, cane refiners cumulative exports exceeded cumulative imports by about 298,000 tons, which consisted of the 305,000 ton export surplus from fiscal year 1994/95, less 7,000 tons they owed the re-export program from the previous year. Only 150,000 tons of the cane refiners cumulative re-export surplus is expected to be closed out in fiscal 1995/96 because of the current differential in the near versus distant world futures prices. Exports Steady Sugar exports for fiscal 1995/96 are forecast to be 500,000 tons, which is unchanged from the previous year. New business under the refined re-export program is expected to offset the loss of re- export sales to Canada, which were about 100,000 tons last year, and the export of extra-allotment beet sugar, 57,000 tons, in fiscal 1994/95. Exports for the first quarter of fiscal 1995/96 were 122,000 tons, very close to one-fourth the expected fiscal year total. Stocks and Prices Ending Years Stock Levels Expected To Improve Fiscal 1995/96 began with U.S. sugar stocks at 1.23 million short tons, raw value, the third lowest beginning stocks of sugar in the last decade (figure 7). Cane sugar beginning stocks, estimated at 711,000 tons, were only lower at the start of fiscal 1989/90 and were 231,000 tons below the fiscal 1991/92-1995/96 olympic average (simple average but dropping highest and lowest values) of 942,000 tons (table 6). Beet sugar beginning stocks for fiscal 1995/96, 552,000 tons, were 47,000 tons above the 5-year olympic average for beet sugar beginning stocks--475,000 tons. Other evidence suggests that fiscal 1994/95 sugar marketing allocations did not force beet sugar processors to carry much more stocks over from last fiscal year than they would have preferred. There was active trading, 19,000 tons, in sugar between processors who wanted to market more than their allocation and processors who had more allocation than sugar to market. The beet sugar sector ended last fiscal year, marketing 43,600 tons less than its allotment. Ending sugar stocks for fiscal 1995/96 are forecast at 1.52 million tons, an increase of 290,000 STRV from fiscal 1994/95. The stocks-to-use ratio for fiscal 1995/96 is forecast at 14.0 percent compared with 12.5 percent for last year. The average stocks-to-use for the period fiscal 1986-1995 was 15.4 percent. The ending stocks-to-use ratio is generally a good predictor of raw cane price in the last quarter of the fiscal year. The stocks-to-use ratio is a measure of how tight supplies are relative to use. A low stocks-to-use ratio means tight supplies and higher prices. A high stock-to-use ratio means larger supplies relative to demand and lower prices. Regressing the ending stocks-to-use ratio on raw cane prices (#14 contract, nearest futures, July-Sept.) for the decade of fiscal 1985/86 - 1994-95 yields the following equation: Raw cane price (4th Q. FY) = 27.82 - .361 * Stocks-to-use ratio R2 = .68 (Standard Error) (1.35)(.09) Predicted price, actual price, and stocks-to-use ratio is depicted in figure 8. Although the model only explains 68 percent of the variation, this appears adequate because there is not a lot of variation in the price of raw cane sugar. The predicted 4th quarter fiscal 1996 price for raw sugar using the above equation, and the latest stocks-to-use forecast of 14 percent, is 22.80 cents per pound. On March 19, 1996, the July 1996 contract closed at 23.08 cents per pound, and the September contract closed at 23.05 cents per pound. The 493,000 ton drop in the beet sugar production forecast had a disproportionate impact on price because much of the anticipated fiscal 1995/96 sugar production had been contracted for sale before the production forecast plummeted. The loss of expected production was a significant portion of the beet sugar available for sale after fall 1995. Beet sugar prices rose to about 29.50 cents per pound, Midwest, and 30 cents per pound, West Coast. The beet sugar shortage, at least in the near term, has deprived the beet sugar sector of its customary price leadership position. Policy Basics of the U.S. Sugar Program The provisions of the current U.S. sugar program and domestic sugar prices are governed primarily by the Agricultural Adjustment Act of 1949, and any amendments, and by the TRQ administered under the Harmonized Tariff Schedule of the U.S. (HTSUS). The HTSUS became effective in 1989, and was amended in the Uruguay Round (UR) multilateral trade negotiations. As a result of the UR, the United States is committed to allowing low- duty sugar imports of a minimum 1.256 million tons, raw value, each fiscal year. A duty of 17.17 cents a pound in 1996 is imposed on raw sugar imports exceeding the low-duty TRQ amount. One key feature of the U.S. sugar program is a non-recourse loan rate for raw cane sugar of 18 cents a pound (national average). The non-recourse loan feature allows any processor who has taken out a loan from the Government, with sugar as collateral, to forfeit the collateral; the Government has no recourse but to accept the sugar as full payment of the loan. Non-recourse loans are also available to beet processors, and the national average refined beet sugar loan rate is currently at 22.90 cents a pound. The Secretary of Agriculture must maintain the sugar price sufficiently high so that processors will choose to sell their sugar in the marketplace, rather than forfeit the sugar to the Government. Under the U.S. sugar program, the two basic mechanisms available to limit the supply of sugar in the U.S. market, and thus support the U.S. sugar price, are import limits under the TRQ (although not below the annual 1.256-million-ton-minimum), and standby domestic marketing allotments. The allotments are designed to restrict supplies of domestic sugar in the event that tighter controls on supply are required beyond the TRQ limits. Domestic marketing allotments were in place during the July-September quarter of fiscal year 1992/93 and for all of 1994/95. USDA announced that sugar marketing allotments for domestic sugar would not be established during the first and second quarter of fiscal 1995/96. The Agricultural Adjustment Act of 1938, as amended, requires such a determination be made and announced prior to or at the beginning of each quarter of the fiscal year. Status of New Farm Legislation By mid-march both the U.S. Senate and the House of Representative passed versions of what was originally designated the 1995 Farm Bill. The proposed legislation includes the Freedom to Farm provisions which would guide policies for major field crops for the next 7 years. There are some differences between the Senate and the House bills, and the proposed legislation has gone to a Conference committee. The sugar policy provisions are essentially the same in both the Senate and the House bills, and include the following: o Continuation of the 18-cent a pound loan rate for raw cane sugar (the same as under current law). o Establish a fixed loan rate for refined beet sugar at 22.90 cents a pound (under current law, the beet sugar loan rate changes each year by a formula, but in 1995/96 is 22.90 cents a pound). o Increase the marketing assessment on first processors of sugarcane by 25 percent, from the current 0.198 cents a pound to 0.2475 cents a pound of raw cane sugar. o Increase the marketing assessment on first processors of sugarbeets by 25 percent, from the current 0.212 cents a pound to 0.2654 cents a pound of refined beet sugar. o Provide that CCC loans shall be made for a maximum of 9 months, and be either non-recourse or recourse subject to the following conditions: If the TRQ for sugar imports is higher than 1.5 million short tons, raw value, then CCC loans to sugar processors shall be non- recourse: the Government has no recourse except to accept the sugar in lieu of the loan if the processor defaults. If the TRQ for sugar imports is at or lower than 1.5 million tons, raw value, then CCC loans shall be recourse: the Government can demand repayment of the loan regardless of the price of sugar. o Eliminate domestic marketing allotments (supply controls). o Provide for a penalty if sugar is forfeited to the CCC, of 1 cent a pound for raw cane sugar, and 1.07 cents a pound for refined beet sugar. o Provide $200 million from general U.S. Treasury funds for restoration of the Florida Everglades (the House version has $210 million). Other provisions of the proposed legislation would raise the CCC loan rate by 1 percentage point above what it would be under current law, for all commodities. If the President signs the 7- year legislation, the sugar provisions would become effective October 1, 1996. A key feature of the proposed legislation is that, under certain conditions, the guarantee of sugar price support would be less certain than under the current program, because of the elimination of domestic marketing allotments (the stand-by domestic supply controls). With a sufficient increase in domestic supply and/or softer domestic demand, import requirements could fall and lead to lower domestic prices. But so long as import requirements remain higher than the minimum import level of 1.256 million short tons, price support could stay unchanged from the current level. Developments in U.S.-Canada Sugar Trade Beginning January 1, 1995, the United States new TRQ under the GATT/WTO agreement reduced Canadian access to U.S. markets for both sugar and sugar-containing products. For the year beginning October 1, 1995, the United States established a global TRQ for refined sugars (which includes beet sugar) of 20,344 metric tons, raw value. The TRQ was quickly filled, about 75 percent from Canada. The United States charges the second-tier Most Favored Nation duty of 18.12 cents a pound on additional refined sugar from Canada in 1996. Meanwhile, the Canadian International Trade Tribunal has issued a ruling in favor of Canadian sugar companies which filed anti- dumping and countervailing duty charges against the United States and five other countries for selling sugar into Canada at low prices. Because Canada has placed prohibitive anti-dumping duties against U.S. sugar, the Savannah Foods & Industries company is appealing the ruling. Also, Canada is exempting a small amount of sugar from the anti-dumping duty sugar if it is re-exported from Canada in products, so that U.S. sugar exports to Canada may not cease entirely. Duties on U.S. sugar sold in Canada range from 69 to 85 percent ad valorem. U.S. Corn Sweeteners Production Corn Production Lower, But HFCS Production Expected To Expand U.S. corn sweetener production is expected to experience strong growth in fiscal 1995/96 (October-September) despite a poor corn crop and record high corn prices. The 1995/96 (September/August) U.S. corn crop is forecast by USDA to be down 27 percent from the record high 1994/95 corn crop of 10.10 billion bushels due to reduced acres harvested and lower yields reflecting weather problems in several States (table 7). With the reduced crop and strong demand from exports and the food, seed, and industrial use (FSI) sector which includes the corn wet milling industry, corn stocks (at the end of the marketing year) are forecast to drop to 412 million bushels, 4.8 percent of total use forecast at 8.54 billion bushels. This contrasts sharply with 1994/95 when end of year stocks were 1.6 billion bushels, 16.6 percent of total use. The tight supply has resulted in strong corn prices (figure 9). The average farm price for corn was $2.26 per bushel in 1994/95 and is forecast by USDA at between $3.00 and $3.40 for 1995/96. The cash price for corn (no. 2 yellow Central Illinois) averaged $3.53 per bushel in January 1996 compared with $2.22 per bushel in January 1995, a 59-percent increase. The U.S. corn-wet milling industry is expected to use over 700 million bushels of corn to produce corn sweeteners (HFCS, crystalline fructose, glucose syrup, and dextrose) this season. This represents almost 10 percent of the corn crop, currently forecast at 7.37 billion bushels (table 8). U.S. corn sweetener production in fiscal 1995/96 (October/September) is forecast to total 12.2 million tons, dry basis, up 3.9 percent. This forecast reflects expanded industry capacity and recent growth trends. HFCS production is forecast at 8.15 million tons, dry basis, up 4.3 percent from 1994/95 and accounting for two-thirds of expected total corn sweetener production for this year. For fiscal 1994/95, HFCS production totaled 7.8 million tons, up 4.8 percent from the corresponding period in 1993/94 (table 9). Glucose syrup and dextrose are the other primary corn sweeteners produced by the U.S. corn wet milling industry. Combined glucose and dextrose production for fiscal 1995/96 is forecast at 4.0 million tons. This is up 125,000 tons from the fiscal 1994/95 estimate and accounts for about a third of total expected corn sweetener production during fiscal 1995/96. Prices and Costs Corn Prices Higher The cost of corn as a raw material input can be viewed either on a gross or net basis. The wet-milling process creates three valuable byproducts: corn gluten feed, corn gluten meal, and corn oil. Sale of these byproducts generates revenues that reduce the gross cost of corn. When corn prices rise, so usually do the byproduct prices, partly offsetting the effect of higher corn prices on corn sweeteners. In the calculation of byproduct credits, it is assumed that 1 bushel of corn weighs 56 pounds and produces 1.55 pounds of crude corn oil, 13.5 pounds of corn gluten feed, 2.65 pounds of corn gluten meal, and 33.33 pounds of corn sweetener, dry weight. Table 10 provides net cost of corn starch data through February 1996. High corn prices and higher demand from the beverage industry have not translated into higher prices for HFCS. HFCS-55 prices (wholesale list prices, Midwest market) averaged 20.45 cents a pound dry basis for the first quarter of fiscal 1995/96 (October- December), only 3.8 percent higher than a year earlier. HFCS-42 prices averaged 18.38 cents a pound versus 17.50 cents for October-December 1994. Moreover, HFCS continues to under-price refined sugar, as wholesale refined beet sugar prices averaged 27.58 cents a pound for the first quarter of fiscal 1995/96 in October-December 1995, and 29 cents a pound in February 1996. This unusual pricing situation for HFCS can be explained largely by the substantial expansion of corn wet milling capacity over the past 18 months--an increase of more than 25 percent according to industry analysts. The new capacity has come on line to service the upward trending demand for corn sweeteners in the United States and the potential, but not yet realized, market in Mexico. Consumption and Trade HFCS Use Expected To Continue Strong Growth Total U.S. corn sweetener use is expected to reach 11.25 million tons of which U.S. production is expected to supply 98 percent. The United States supplements domestically produced corn sweetener supplies with imports, mainly from Canada. USDA forecasts fiscal 1995/96 HFCS consumption at 8.0 million tons, dry basis, up nearly 4.2 percent from 1994/95. The growth is expected to be underpinned by a 3-to 4-percent expansion of the soft drink industry in 1996 largely from nutritive products sweetened with both HFCS-55 and 42. In addition, use of HFCS-42, glucose syrup and dextrose is also expected to expand in the processed foods sector. While demand for corn sweeteners is up, competition for market share among corn wet-millers has been intense. With increased capacity, and the capacity utilization ratio dropping from over 90 percent in the early 1990's to 75 to 80 percent in 1995 and 1996, the competition for the beverage market has been intense. Market reports reveal a buyers market as individual sweetener buyers for soft drink manufacturers reported they were flooded with offers prior to contracting for the new year (large soft drink manufacturers generally contract for HFCS purchases on an annual calendar year cycle). HFCS deliveries for the first quarter of fiscal 1995/96 totaled 1.75 million tons, up 4.6 percent from the corresponding quarter in 1994/95, but down 17 percent from July-September 1995, reflecting the seasonality of HFCS demand (table 27). HFCS deliveries for fiscal 1994/95 totaled 7.72 million tons, up 3.9 percent from the preceding year. HFCS-55 use is driven largely by demand by the nonalcoholic beverage sector which normally accounts for 90 percent of its total use. Tables 28 and 29 provide a breakout of HFCS-55 and HFCS-42 use by major food use categories and beverages. For HFCS-55, there appears to be only small growth in food categories such as processed foods; with beverages remaining the leading category of use. HFCS-42 depends on beverages for only about 40 to 45 percent of its total use. However, the volume use of HFCS-42 in beverages, especially in root beers and heavier flavored soft drinks, has expanded as quality improvements in the products has been made over time. Other food use categories in total are more important and expanding, especially use in processed foods, and the cereal and bakery category. Exports to Mexico Weak Part of the capacity utilization problem reflected in relatively stable HFCS prices can be traced to the Mexican market. Mexico has the world's second largest soft drink market after the United States, and the U.S. corn wet milling industry has been positioning itself to meet potential Mexican demand, if the Mexican soft drink industry begins to substitute HFCS for sugar. Problems in the Mexican economy, including the peso devaluation in December 1994, have stalled hopes of the U.S. corn wet-milling industry to develop the Mexican market. After trending sharply upward for several years, U.S. exports to Mexico of HFCS, including HFCS-42, HFCS-55, and crystalline fructose, dropped from 67,200 metric tons dry basis, in fiscal 1994 (October 1, 1993-September 30, 1994) to 49,800 tons in fiscal 1995. Helping to foster this potential trade is the declining tariff on HFCS. Under NAFTA, the Mexican tariff on U.S. HFCS drops 1-1/2-percent a year from 15 percent to zero by 2004. For 1995, the tariff on HFCS was 12.0 percent ad valorem, and this year it is 10.5 percent. List of TablesPage 1. World sugar supply and use and stocks-to-consumption ratio and world prices 2. European Union (EU-15) sugar production, supply, and distribution 3. World sugar trade, by leading sugar exporters and importers 4. U.S. sugarbeet crops: Area planted, harvested, yield, and production, by State and region, 1990-1995 5. U.S. sugar: Area, yield, production, output, recovery rate, and sugar yield per acre, crop years 6. U.S. sugar stocks held by primary distributors, by quarters 7. U.S. corn supply and use 8. U.S. wet milled use of field corn, crop years 9. U.S. high fructose corn syrup (HFCS) production, quarterly, fiscal, and calendar years 10. Net cost of corn starch to U.S. wet-millers, Midwest markets 11. World sugar production, supply, and distribution, by selected countries 12. World raw sugar prices, monthly, quarterly, and by calendar and fiscal years 13. World refined sugar prices, monthly, quarterly, and by calendar and fiscal years 14. U.S. raw sugar prices, duty/fee paid, New York, monthly, quarterly and by calendar and fiscal years 15. U.S. wholesale refined beet sugar prices, Midwest markets, monthly, quarterly, and by calendar and fiscal years 16. U.S. retail refined sugar prices, monthly, quarterly, and by calendar and fiscal years 17. U.S. wholesale list prices for HFCS-55, Midwest markets, monthly, quarterly, and by calendar and fiscal years 18. U.S. wholesale list prices for HFCS-42, Midwest markets, monthly, quarterly, and by calendar and fiscal years 19. U.S. cane sugar production by State (including Puerto Rico), and beet sugar, monthly, quarterly, and by fiscal and calendar years 20. U.S. beet and cane sugar production (including Puerto Rico), fiscal years and percent share of total 21. U.S., cane sugar (including Puerto Rico), and beet sugar deliveries, monthly, quarterly, and by fiscal and calendar years 22. U.S. sugar deliveries by region, calendar years and quarters 23. U.S. sugar deliveries for human consumption by users, quarterly and by calendar years 24. U.S. sugar exports, fiscal years 25. U.S. sugar imports under quota and tariff-rate quota, by country 26. U.S. sugar (including Puerto Rico) supply and use, fiscal years 27. U.S. high fructose corn syrup (HFCS) deliveries, quarterly, fiscal, and calendar years 28. U.S. HFCS-55 deliveries to domestic users, by type of use 29. U.S. HFCS-42 deliveries to domestic users, by type of use 30. U.S. high fructose corn syrup (HFCS) supply and use, by calendar years 31. U.S. (including Puerto Rico) total consumption of caloric sweetener, calendar years 32. U.S. (including Puerto Rico) per capita consumption of caloric sweeteners, calendar years 33. U.S. (including Puerto Rico) sugar and HFCS consumption and per capita use, fiscal years Special Article Great Lakes Beet Sugar Industry: Recent Developments and Future Prospects by Peter Buzzanell1/ Abstract: There are six beet sugar factories in Michigan and Ohio which process sugarbeets from about 200,000 acres, about 14 percent of total U.S. sugarbeet acreage. Acreage in Michigan has risen about 60 percent in the last 10 years, but acreage in Ohio has been relatively constant at under 20,000 acres. Corn and soybeans provide stronger competition for land in Ohio. In 1992, about 1,500 farms grew sugarbeets in Michigan, and about 225 in Ohio. Processors increasingly attempt to encourage farmers to manage sugarbeet production practices for sucrose extraction quality, and not just high yields. The sucrose content of sugarbeets, and the extraction of sugar from the beets, has been rising in recent decades. In 1989, a facility to extract sugar from beet molasses using ion-exchange technology was constructed in Ohio. Marketing is generally to regional customers for which the companies enjoy a freight cost advantage. Keywords: Michigan, Ohio, sugarbeets, beet sugar, molasses, beet pulp. Introduction Beet sugar production in the Great Lakes States of Michigan and Ohio has been a key source of the U.S. sugar supply since the early part of this century. Considerable expansion in recent years has been due to growth in sugarbeet production in Michigan that has more than offset a decline in Ohio. Increased acreage devoted to sugarbeets has been encouraged by expansion in capacity by processing companies operating in the region as well as the relatively attractive price and economic returns of sugarbeets compared with alternative crops. 1/ Peter Buzzanell is an agricultural economist and Sweeteners and Tobacco Analysis Team Leader in the Commercial Agriculture Division, Economic Research Service, USDA. This is the third in a series of articles on the U.S. beet sugar industry. The first article on California appeared in June 1991. The second article covering the Red River Valley of Minnesota and North Dakota appeared in September 1994. These articles are available upon request from ERS, USDA. Sugarbeet Area and Yield Great Lakes sugarbeet agriculture is concentrated in the Saginaw Valley of central Michigan and in north-central Ohio near the regions six processing plants (figure A-1). In Michigan, a concentrated six county area including Bay, Gratiot, Huron, Saginaw, Sanilac, and Tuscola, adjacent to Saginaw Bay, accounted for 87 percent of the nearly 175,000 acres harvested for sugarbeets according to the most recent Census of Agriculture (1992). Between the 1987 and 1992 Censuses, sugarbeet acreage increased 26 percent with much of the growth accounted for in this six county area (table A-1). In Ohio, the much smaller growing area--20,000 acres in 1992--was also concentrated in a six county area including Erie, Huron, Ottawa, Sandusky, Seneca, and Wood which accounted for 81 percent of total harvested acreage. Two counties bordering Ohio in southeastern Michigan, Lenawee, and Monroe, also regularly produce sugarbeets which are processed at the Fremont plant in Ohios Sandusky county. Michigans harvested sugarbeet acreage has been on a sharp growth path, especially over the past decade (table A-2 and charted in figures A-2 and A-3). For 1995, USDAs National Agricultural Statistics Service (NASS) estimates harvested acreage at a record 188,000 acres, up nearly 60 percent from a decade earlier and accounting for 13 percent of the national total. The upturn in acreage can be attributed to a number of factors including better economic returns from sugarbeets compared with alternative crops, such as grains, soybeans, and dried beans; and investments by beet processing companies to improve extraction and expand factory capacity. In Ohio, sugarbeet harvested acreage was at a decade low of 15,300 acres in 1995 (table A-2). Given normal beet yields and recovery rates, the processor would like to contract for 25,000 to 28,000 acres to service the capacity of the Fremont, Ohio plant, the only remaining plant in Ohio. In the early 1970's, sugarbeet acreage levels were nearly double the current level, in part, reflecting the operation of three processing plants in the State. Acreage levels have remained low because of high freight costs for growers now able to ship only to the Fremont plant; poor yields during the last 5 years; and improved returns from alternative crops such as cucumbers for pickles, tomatoes for processing, and cabbages. Demand for these high-value crops benefit from the operation of processing plants located in Henry and Sandusky counties. Sugarbeet yields in the Great Lakes States average around 16 short tons per acre (figures A-4 and 5). This compares with a national average of about 20 tons per acre, and an average in some irrigated areas of 25 tons or more per acre (table A-3). The variability of yields in the Great Lakes producing States is higher than in irrigated areas in the western United States because of occasional low rainfall years or excessive moisture at planting or harvest. Excessive moisture can delay planting, provide the environment for increased numbers of pests, weeds, and or diseases. Excessive moisture can also delay harvest and increase the risk of losses due to an early freeze. While these problems have been lessened somewhat due to extensive use of drainage facilities, yields remain highly vulnerable to weather conditions. For example, yields in Michigan over the last 5 years ranged from a high of 20.8 to a low of 15.5 tons per acre, a 5.3 ton per acre spread. The Great Lakes 1995 sugarbeet crop yields are estimated by USDA to average only 15.7 tons per acre, the second lowest in the past 25 years. Significant spring rains in April and May 1995 delayed plantings. Climatic conditions through the summer months provided below normal precipitation and above normal temperatures. Coupled with a heavy infestation of root aphids, these conditions had a negative effect on yields. Michigans expansion in sugarbeet production has been fairly steady over the last 15 years, offsetting the generally declining production in Ohio (figure A-6 and A-7). For the 1995 crop, USDA estimates that the two Great Lakes states produced 3.20 million tons of sugarbeets of which Michigan accounted for 2.97 million tons and Ohio 230,000 tons. This represents 11 percent of the national total of 28 million tons, compared with 11 percent in 1985 and 8 percent in 1975. However, this level of production is well below the roughly 3.4 million tons and 500,000 tons, respectively, needed annually to utilize efficiently the installed processing capacity in Michigan and Ohio. Sugarbeet Agriculture Great Lakes sugarbeet agriculture takes place on highly fertile soil on relatively flat terrain. In Michigan, the bulk of production is on lake bed soil extending in a crescent shape out from Saginaw Bay. Fertility of soils and yields tend to decline further away from the Bay. Yields also tend to be lower in areas that have poorer drainage. Rainfall averages between 30 and 35 inches annually. This is adequate to raise a sugarbeet crop without irrigation, but periodic droughts have been a problem. Given the low lying terrain and heavy soils, excessive moisture tends to be a problem in the spring and fall, sometimes hampering farming operations. To deal with these problems, farmers in the region have invested heavily over the years in subsurface tile drainage systems. The tile drains are about 2- feet deep and are placed 30 to 60 feet apart. The Ohio growing area is similar to Michigan, the topography is flat and the soils tend to range from heavy loams to more sandy soils away from Lake Erie. Normal rainfall is 30-35 inches annually, but drought can be a problem. Poor drainage is less of a problem in the Ohio growing area than in Michigan. The average growing season is 185 days for Ohio, compared with 175 days in Michigan (mid-April to mid-October). According to the U.S. Census of Agriculture for 1992, approximately 1,500 farms grew sugarbeets in Michigan and 225 in Ohio (table A-1). Sugarbeets are recommended to be grown on any particular field only once every 4 or 5 years to cut down on disease problems, so farmers rotate sugarbeets with other crops. In central Michigan, the most common rotation crops are corn, wheat, soybeans, and dry beans. Michigan is the nations largest producer of dry edible beans, and the Saginaw area is the prime growing area within the State, especially for navy (pea) beans. In Ohio, in addition to high-value cucumber and tomato crops, farmers also rotate sugarbeets with soybeans, corn, and other grains. In both areas, acreage in sugarbeets as well as these rotation crops tend to shift with changes in market prices. The relatively stable prices received for sugarbeets, coupled with the contracts and technical assistance provided by nearby processors, has led sugarbeets to become the foundation crop in many farming operations in the region. Sugarbeets are planted in April and May in the Great Lakes region. Earlier planting can result in higher yields, but the threat of a late-spring freeze extends into May. Late planted or replanted beets need extra growing time in the fall to mature before harvesting, but they run the risk of an early fall freeze while the beets are still in the ground. Each processor contracts with growers for acreage based on an assessment of yields and estimated tonnage. If a spring freeze or delayed plantings lowers expected yields, farmers are given permission to increase the number of sugarbeet acres to try to reach the target tonnage for the factory. Great Lakes farmers have been adopting new and better equipment, such as six-row harvesters that can cover more ground per day. Some farmers can now plant 100 acres per day with a single tractor pulling 12-16 row planters. Growers in the Great Lakes region have been shifting from planting the conventional 28-30- inch rows to 20-22 inch rows. Research indicates that a marginal return of $20-$25 per acre can be gained by changing to narrow rows. The need to thin sugarbeets has been virtually eliminated by new varieties which have a higher germination rate, allowing farmers to plant-to-stand. In addition, sugarbeet farmers are increasingly using the minimum tillage method of crop husbandry which leaves more organic material on the surface of the land, thus preventing soil erosion from wind and rain as well as reducing the cost of operating field equipment. Variety usage has changed dramatically over the past 15 years in Michigan and reflects an effort to maximize sugar per acre. In the early 1980's, HMI-E4 replaced the old standard varieties. This variety, E4, was approximately three-fourths of a percent higher in sugar content and equal in yield. New improved varieties introduced since the late 1980's have even higher sugar content but slightly less yield than HMI-E4. Since 1991, parts of the region have had quite adverse cropping conditions, such as late planting, excess rain, and root aphid infestation last year that hit the Sebewaing area especially hard. Grower yields have been reduced approximately 3 tons per acre since 1990; however, the sugar content was up 1-1.5 percentage points. Another advance is the use of band sprayers to apply chemicals directly to either side of the sugarbeet plant. A key development has been improvement in nitrogen management. According to researchers, applying the correct amount of nitrogen largely determines beet quality and yields--too little penalizes the grower is by lower yields, too much reduces income due to lower- quality beets plus the increased risk of nitrogen leaching into surface and ground water. Currently the optimum rate of nitrogen use is between 90 and 120 pounds per acre. Research indicates the upper range is necessary when beets follow corn or wheat in rotation. The sugarbeet plant actually produces more sucrose at the end of the season if it is nitrogen-starved. Most-favorable sugarbeet crop development includes an early and complete leafing-out of the plant so that the canopy covers the ground and discourages weeds, and breeders attempt to develop this trait. Seed companies are also working to develop varieties that are resistant to herbicides, such as Roundup, which would kill current sugarbeet varieties. For example, residual herbicides in the soil from use on soybeans can be a problem for rotation crops like sugarbeets following soybeans. According to researchers, one of the most pressing agronomic problems of Great Lakes sugarbeet growers are soil borne diseases such as the fungus rhizoctonia. Some growers are losing 20 to 25 percent of their beet stands due to the problem. One solution is changing the seed approval process and encouraging the use of resistant varieties. Other important research topics being looked at by the research departments of the regional processing companies or at Michigan State or Ohio State Universities include nitrogen fertilization, herbicide studies, and variety performance evaluations, such as storage testing and resistance to cercospora leafspot. In the fall harvest, the leafy beet tops are cut off. If the beets are left in the ground after they have been topped, they rapidly lose sucrose content, so farmers lift the beets immediately after topping. Harvesting is done late enough to allow maximum sugar development, but before the ground freezes. In the Great Lakes region, the harvest normally begins around October 1 and ends in mid-November. Farmers haul their beets at their own expense from fields to processor operated piling stations or directly to the plant. The cost of transporting beets from piling stations to the factory for processing is shared to varying degrees between the grower and processor. Processor-Grower Relations The regional processors--Michigan Sugar Company and its subsidiary, Great Lakes Sugar; and Monitor Sugar Company, annually contract with farmers to grow sugarbeets for their factories. For their efforts growers receive 53.1 percent of the net sale proceeds for sugar, and the byproducts beet pulp, and molasses. For the 1995/96 season, Michigan Sugar Company contracted for 120,000 acres of sugarbeets with growers in Michigan and Monitor Sugar Company contracted for approximately 66,000. In Ohio, Great Lakes Sugar contracted for 18,000 acres, although the 27,000 acre level achieved in 1992 is more in line with the plant capacity at Fremont, Ohio. The processor sets the schedule for the harvest. In recent years contracts have been modified to provide greater incentives for growers to harvest and deliver beets early in the season. Sugarbeets harvested in the early campaign would have developed more sugar had they been left to grow for a few more weeks. Farmers are paid premiums for their early harvest, and the companies attempt to set the premiums so as not to penalize those who harvest early. Processors increasingly attempt to encourage farmers to manage their crop for quality and not just tonnage. Sugarbeets are tested when delivered to piling stations or to the factory to collect data on each growers sugarbeet characteristics. The chemical analysis tests are not only for sucrose content, but also for characteristics that will affect the factorys ability to recover sugar. For example, high nitrogen levels can reduce extraction rates. Processors also closely monitor the condition of piled beets so as to reduce sucrose loss. For example, a hot spot detected in the pile from infrared aerial photographs might indicate deterioration and thereby require rapid processing to avoid excessive sucrose loss. The extraction rate has been trending up in recent years reflecting the improved quality of the beets entering the factories and the improved technical ability of the plants to extract sucrose. For Michigan Sugar Company, the sucrose content of beets averaged 16.9 percent and the extraction rate was 81.9 percent for the 5-year period 1990/91-1994/95, compared with 15.1 percent and 80.2 percent for the preceding 5 year period (1985/86-1989/90). As a result of these improvements the refined sugar produced per short ton of beets processed averaged 256 pounds 1990/91-1994/95, compared with 243 pounds for 1985/86- 1989/90, a 14-percent increase. Beets delivered to Monitor Sugar had an average sugar content of 17.97 percent for the 5 years ending with the 1994/95 season compared with an average of 16.40 percent for the 5 years ending with the 1986/87 season, a 9.6- percent increase. Extraction, however, increased 14.8 percent during the same period, rising to 249.27 pounds from 212.38 pounds per ton of beets sliced. Unfortunately, for both regional processors, the numbers for all 3 parameters are down in 1995/96 because of the poor quality of the crop. Beet Sugar Factories The Great Lakes region has six factories currently operating, five in Michigan and one in Ohio (figure A-1). Combined slicing capacity is 27,100 tons of beets per day, up by 56 percent from the early 1980's, and currently accounting for 15 percent of national sugarbeet processing capacity (table A-4). Michigans five beet processing facilities currently have a combined daily slicing capacity of 23,300 tons, compared with 14,200 tons per day in 1982/83. The Michigan Sugar Company, a subsidiary of Savannah Foods & Industries, Inc., has four plants located at Caro, Carrollton, Croswell, and Sebewaing, Michigan (Figure A-1). Michigan Sugar Company has invested about $25 million in expanding capacity at its Croswell and Sebewaing plants in recent years (table A-4). The States fifth plant is Monitor Sugar Companys facility at Bay City. This facility has a daily slice capacity of 8,000 tons, nearly double its capacity in the early 1980's and ranks as one of the larger beet processing plants in the nation. Monitor Sugar, a subsidiary of C.G. Smith Foods limited, a food processing conglomerate headquartered in South Africa, has invested around $95 million to expand and modernize its Bay City plant over the last decade. Normally the processing season runs from early October to early February. The entire process of converting beets to sugar takes approximately 8 hours. Figure A-9 provides a flow-diagram of the mechanical and chemical processes to produce sugar from sugarbeets. These processes include extraction, purification, evaporation, crystallization, separation, and drying. In addition to investing in technical advances to achieve factory efficiencies, the Michigan companies use the process called thick juice storage whereby thick juice from a small portion of each days slice is stored in tanks for processing after the beet campaign or just before the start of the next campaign. This processing period is called the juice campaign and adds to plant utilization levels, generating more output. The Michigan Sugar Company operates a juice campaign at Fremont, Ohio and Sebewaing, Michigan. In Ohio, the Great Lakes Sugar Company, a subsidiary of the Michigan Sugar Company, currently operates the processing plant located at Fremont. This plant has a slicing capacity of 3,800 tons per day, up 6 percent since the early 1980's. The Great Lakes Sugar Company was formed from the Northern Ohio Sugar Company, a subsidiary of the now defunct Great Western Sugar Company headquartered in Denver. Great Lakes Sugar also operated processing facilities at Findlay and Ottawa, Ohio which were closed in the late 1970's. The late 1970's and early 1980's was a difficult time for the Northern Ohio Sugar Company. To increase utilization of plant and equipment, raw cane sugar was processed at the plant, but this proved uneconomic. The plant did not operate during the 1982/83 season because of a contract dispute between growers and the processor and then operated on a limited basis in 1983/84. By the mid-1980's the Great Western Company had gone bankrupt, and after a failed attempt to form a grower cooperative to buy the plant, Great Lakes Sugar became a subsidiary of the Michigan Sugar Company owned since 1985 by Savannah Foods and Industries, Inc. Currently, the Fremont plant processes sugarbeets for the entire Ohio growing area as well as the beets from Lenawee and Monroe counties in the extreme southeastern part of Michigan. Since the closure of the Findlay plant, sugarbeet acreage in Harden and Wyandot counties has declined. The Ottawa plant depended heavily on acreage in Allen, Defiance, Fulton, and Van West countries in north western Ohio and with its closing growers faced expensive hauls to the Fremont plant. Before the closures, most growers were within 40 miles of the plants. This factor, along with improved prices for processing, and poor beet yields the past 5 years, contributed to a decline of acreage in sugarbeets in north-central Ohio. The Fremont facilitys normal sugarbeet slicing campaign runs from mid-October to mid-February, with year to year variations depending on the size of the crop. To supplement direct slicing sugar production operations, Fremont traditionally has also run a thick juice campaign. In addition, since 1989 the molasses desugaring facility based on ion-exchange technology, has operated at a location adjacent to the Fremont sugarbeet factory. This facility is owned by ADSEP, a separate Savannah Food and Industries subsidiary. Beet molasses is supplied by the Fremont plant as well as Michigan Sugars four plants located in Michigan. Molasses is stored until after the beet slicing campaign ends, so as not to mix sugar from grower beets with the sugar from the processing companys molasses. Costs of Producing and Processing Sugarbeets and Beet Sugar in the Great Lakes Region USDA collects data on the cost of producing both sugarbeets and processing beet sugar. The data are collected through the USDAs Farm Costs and Returns Survey. Table A-6 provides detailed information on sugarbeet production cash costs and returns for the Great Lakes, the other major producing regions, and the United States. For the crop years 1992-1994, Great Lakes variable cash expenses averaged $280 per planted acre with fertilizer and chemicals, the leading cost items, together accounting for 20 percent of the total. Fixed cash expenses, including taxes and insurance and interest on loans, averaged $161 per planted acre for the Great Lakes. Therefore, total cash expenses averaged $441 per planted acre for the Great Lakes, compared with $397 for the Red River Valley of Minnesota and North Dakota, $576 for the Great Plains, $753 for the Northwest, $911 for the Southwest, and $545 for the entire United States (Figure A-7). Both the Great Lakes and Red River Valley areas have much lower per-acre costs for leading production inputs than other parts of the United States, reflecting the lack of irrigation, the high fertility of the soils, and harsh winters that reduce the levels of costly insect control in the spring and summer. The main difference between cash expenses in the Great Lakes region and the Red River Valley is the higher cost of taxes and insurance in the Great Lakes, double the Red River Valley and the highest of the five regions. Both producing regions are unirrigated so their purchased water costs are very small compared with the $27-$30 per planted area in the western regions. The gross value of production less cash expenses averaged $146 per planted acre in the Great Lakes region for 1992-1994 (table 6 and figure A-8). The gross value of production is derived by calculating the season-average price (dollars per ton) times yield (net tons per planted acre), and a value for beet tops if any. The Great Lakes ranked last in the value of production compared with other regions and below the U.S. average largely due to its lower yields and season average sales prices. Table A-7 provides an accounting of the U.S. and regional sugarbeet production including full economic costs and returns. For the 1992-1994 period, the residual returns to management and risk averaged -$8.0 per planted acre for the Great Lakes, +$155 for the Red River Valley, -$54 for the Great Plains, -$12 for the Northwest, and -$89 for the Southwest. Interestingly, the only region consistently generating positive returns for the period was the Red River Valley, the region that has experienced the greatest growth in recent years. Processing costs tend to be much more uniform across the United States, reflecting relatively comparable processing technologies at each mill (figure A-10). For the Red River Valley and Great Lakes as a whole, total processing costs averaged $35 per net ton of sugarbeets sliced, of which variable cash expenses were $27, fixed expenses $3.5, and general and administrative expenses about $1. These data do not differ greatly from the western regions (table A-8). To obtain a net processing cost, byproduct credits for beet pulp and molasses must be subtracted--$8.4 per ton for the east, leaving net processing costs of $27 per ton of beets sliced for the 1992-94 period. Table A-9 presents the processing cost data on a cents per pound refined beet sugar basis. For the east, total variable cash expenses averaged 8.4 cents a pound, including 2.7 cents for marketing. Fixed cash expenses averaged 1.07 cents of which depreciation accounted for about two-thirds of the total. General and administrative and pulp drying and marketing averaged 0.32 and 1.03 cents a pound, respectively. Gross processing costs averaged 10.82 cents a pound, and net processing costs 8.23 cents after subtracting byproduct credits. Marketing Sugar and Byproducts For the first 5 years of the 1990's, the Great Lakes region has produced and marketed about 415,000 tons of beet sugar annually, up nearly 60 percent from 260,000 tons in the first half of the 1980's (table-A-5). This sugar is sold both to industrial users and retail outlets. The split between the many industrial users in the region and retail outlets shifts from year to year depending on where the better margins can be obtained. Both processors operating in the Great Lakes region market brand name and unbranded products at the retail level. Michigan Sugar Companys brand is Pioneer Sugar, while the Monitor Sugar Company has the Big Chief Sugar brand. Both brands have broad name recognition within the region. In addition to traditional grocery 5-pound bags, the processors market an increasingly wide range of package weights and ship pallet sizes of granulated, brown, and powdered sugar to meet the needs of industrial and retail users. Increasingly, the transactions between seller and buyer are handled on computerized EDI systems which have reduced costs of paperwork while heightening operating efficiencies. The distribution of sugar sales by the regional processors is largely confined to the 5 State area of Michigan, Ohio, western Pennsylvania, western New York, and northern Indiana. In this area, the Great Lakes processors have a freight advantage over sugar from outside the region. The freight advantage is not just in terms of cost, but also takes into account the demand for just-in time-delivery by customers. Regional beet sugar processors shipping by truck have a comparative advantage over marketers from outside the region as they tend to have a better performance record for the precision-timed deliveries increasingly demanded by customers. This trend requires heavier product stock-holding by processors than in the past as well as an increased burden on infrastructure to maintain precision delivery performance. As sugar from the Great Lakes moves out of this core region, its freight advantage diminishes and it encounters increasing competition from East Coast cane sugar refiners and from beet sugar processors from the upper Midwest, Great Plains States, and large sugar resellers in the Chicago area. Because of the poor 1995 crop, the volume of beet sugar supplies being marketed by Great Lakes processors this year is down considerably (table A-5). Market reports indicate that the companies are supplementing their diminished regional supplies with cane sugar. This is being done to fulfill product commitments to customers and thereby maintain market share until more normal supplies are available from the new crop next fall. The current situation differs greatly from the fourth quarter of fiscal 1992/93 and all of fiscal 1994/95 when USDA implemented domestic marketing allotments. The 1990 Food, Agriculture, Conservation, and Trade Act (FACTA) provided that domestic marketing allotments were to be triggered when imports were expected to fall below 1.25 million tons, an amount reaffirmed as the U.S. minimum low-duty access agreed to in the GATT Uruguay Round agreement. The total allotment for fiscal 1994/95 was 7.889 million short tons (raw value), limiting beet sugar to 4.35 million short tons and cane sugar to 3.54 million short tons. In setting the allotment levels, USDA utilized a weighted 3-factor criteria: past marketings (25 percent); processing capacity (25 percent); and ability to market (50 percent). Given USDAs criteria, the Great Lakes processors received initial allotments of 253,000 tons for Michigan Sugar Company (including Great Lakes Sugar and ADSEP) and 149,000 tons for Monitor Sugar Company. These amounts were adjusted slightly during the year. According to industry officials, the impact of allotments on the marketing of their products required additional planning to balance their potential marketings against allocations. Sugar that was blocked from the market increased storage costs as well as added interest costs. USDAs penalty on over-marketings provided a financial incentive for companies to stay within assigned allocation levels. The statute provided for a penalty of 3 times the market value of sales at the time of the violation. The marketing of the byproducts beet pulp and molasses is an important segment of processors sales not subject to marketing allotments. Generally, about 1 ton of beet pulp is produced for each acre of sugarbeets processed. Therefore, for the 1995 crop, about 185,000 tons of beet pulp was produced during the 4-month processing season. In recent years, 75 percent or more of annual beet pulp production has been marketed overseas either in Europe or Japan as a feed stuff. The remainder is marketed domestically for livestock feeding. As noted in table A-9, beet processors in the Red River Valley and Great Lakes received an average byproduct credit in 1992-1994 from beet pulp of $6.16 per net ton of beets sliced or 1.91 cents per pound of refined sugar. The Great Lakes region normally produces about 180,000 tons of beet molasses annually. Beet molasses is traditionally used in animal feeding operations and in industrial uses such as a feedstock for yeast production. Monitor Sugar Company still markets the traditional form of beet molasses. However, Michigan Sugar Company and Great Lakes Sugar Company desugars most of its beet molasses at the Fremont, Ohio facility. Note: Every 100 pounds of molasses generally contains about 48 pounds of sugar. If 85 percent of that sugar can be extracted from the molasses in a desugaring operation this would equal 38 to 41 pounds of sugar per every 100 pounds of molasses processed. The Fremont factory uses a "three-fraction" process. In addition to sugar, the plant makes two co-products, CMSB (consolidated molasses solids, beets) and betaine. CMSB contains about 18 to 21 percent sugar. In addition to feed use, CMSB is being employed in multiple industrial applications. Betaine is used as a growth stimulant for poultry and fish. Prospects for the Future While the beet sugar industry in the Great Lakes States led by Michigan has experienced generally strong growth in recent years, future prospects will hinge on prices of alternative crops relative to sugarbeets and domestic sugar policies. For the 1996/97 crop year, indications are that acreage will be down in both Michigan and Ohio. Alternative crop prices are generally very strong--wholesale wheat prices (No. 1 HRW, ordinary were $5.31 per bushel in January 1996, compared with $4.00 a year ago, a 33-percent increase; corn prices (No. 2 yellow) were $3.53 per bushel, compared with $2.22 a year ago, up 59 percent; and soybean prices were $7.26 per bushel, compared with $5.45 a year ago; up 33 percent. In contrast, navy bean prices at $18.00 per hundredweight, are off from a high of $28.00 in January 1995 reflecting the record crop in Michigan this past year. These prices make grains and soybeans especially attractive to growers preparing for spring planting. But a return to normal weather and sugar content would allow sugar production to bounce back, even with somewhat reduced sugarbeet acreage. Over the longer run, the viability of sugarbeet production in the region will be affected by domestic sugar policies such as the price support level. As table 10-A indicates, the season average price for sugarbeets received by growers has been relatively stable since the early 1980's. Possible reductions in support coming out of the new farm bill could make sugarbeets less remunerative. Nonetheless, costs have been trending down for the region, both on the production and processing side. While 1995/96 costs can be expected to be up due to the poor quality of the crop, the general trend is for a more efficient Great Lakes cropping and processing sector. This trend will help to maintain the viability of sugarbeet agriculture in the region even with possible reduced levels of government support. Moreover, while beets cost more to produce than corn or soybeans, the gross value of production less cash expenses has favored sugarbeets (table A- 11). This trend is likely to continue. From a marketing perspective, the regional processors are likely to maintain their aggressive posture of servicing their regional customers. As is the case this year, they will adapt to market situations to maintain market share. Moreover, because of their basic freight advantages within the market compared with competitors from outside the region, coupled with their increasing sophistication in the use of modern marketing tools, processor can be expected to maintain their regional marketing position. In addition, it appears that when the new farm bill is finalized there will be no provisions for domestic marketing controls. This reduced government intervention in the market is seen as a plus by both processors and farmers. They believe more efficient producers who have made capital investments to reduce their unit costs will find their rewards increasingly in the market place. References Braem, Robert D. (1989) "Grower Incentive for Early Delivery Beets." Pioneer Sugarbeet Magazine, Spring. Braem, Robert D. (1995) "1995 Crop Update." Pioneer Newsbeet Magazine, Fall. Buzzanell, Peter (1992) Field Interviews with Great Lakes Sugarbeet Farmers and Industry Officials. November, 1992. Buzzanell, Peter (1996) Telephone Interviews with Great Lakes Sugarbeet Farmers and Industry Officials. February, 1996. Buzzanell, Peter and Gray Fred (1992) "U.S. Beet Molasses Desugaring: Implications for the Sugar and Molasses Markets." Sugar and Sweetener Situation and Outlook Report, December, 1992. Christensen, Donald R. (1991) "Comparison of 22- and 30-Inch Row Width for Crop Production." Pioneer Newsbeet Magazine, Spring. Christensen, Donald R. (1991) "Nitrogen Recommendations for Sugarbeets Research Update." Pioneer Newsbeet, Spring. Ferris, John (1990) "Contribution of the Sugarbeet Industry to the Michigan Economy." Michigan State University, Research Report 501, 12p. October. LeCureux, Jim (1996) "Michigan Growers Examine High-Residue Cropping System."The Sugarbeet Grower Magazine, February, 1996. Lilleboe Don (1990)" Better Stands Through Fall Tillage." 1990. The Sugarbeet Grower Magazine, February, 1996. Lilleboe, Don (1996) "Michigan Beet Grower Enters Narrow-Row and No Till Realms." The Sugarbeet Grower, February, 1996. Lilleboe, Don (1996) "Spring Time Zone." The Sugarbeet Grower Magazine, February, 1996. Loven, Jennifer (1996) "Sugar Farming." Associated Press, Bay City Michigan, February 6, 1996. Lucier, Gary (1995) "The Situation and Outlook for U.S. Dry Beans." Paper Presented at the Michigan Bean Shippers Associations 1995 Summer Conference; Harbor Springs, Michigan, August. McGuffey, W.C. (1986) "Plant Populations." Pioneer Newsbeet Magazine, Spring. Michigan Sugar Company (various years) Pioneer Newsbeet, magazine published annually in the Fall and Spring. Monitor Sugar Company (various years) Big Chief News. Newsletter published annually in the Fall and Spring. Nielsen, Leif (1986) "Beet Sugar and Its Processing." Pioneer Sugarbeet Magazine, Fall. Nielsen, Leif (1992) "Factory Capital Improvements." Pioneer Sugarbeet Magazine, Fall/Spring. Persinger, HasLen (1995) "Michigan Beet Grower Enters Narrow-Row & No-Till Realms." The Sugarbeet Grower, February, 1995. Renner, Karen A. (1991) "Herbicide Carryover to Sugarbeets Grown in Michigan." Pioneer Sugarbeet Magazine, Spring. Sunderland, Don (1992) "History of the Fremont, Ohio Factory Part I & II." Pioneer Newsbeet Magazine, Spring and Fall. United States Beet Sugar Association (1994) "Annual Directory of American Beet Sugar Companies." United States Department of Agriculture (1996) "Crop Values for Sugarbeets." Crop Values, 1995 Summary p 34. National Agricultural Statistics Service. United States Department of Agriculture (1995) Sugar and Sweetener Situation and Outlook Yearbook. December, SSSV1N4. Zielke, Richard C. (1996) Agricultural Research Program for Michigan Sugar and Great Lakes Sugar Companies." Sugar Journal, February. Special Article Sugarbeet Farm Characteristics and Production Costs, 1992 by Mir Ali and Robert McElroy 1/ Abstract: The U.S. Department of Agriculture surveyed sugarbeet growers in the winter of 1993 for financial and structural information relating to the 1992 crop. The average total cash cost of producing the 1992 crop was $26.06 per net ton of beets harvested, or $538.20 per acre. Hired labor, chemicals, and fertilizers were major cost components, accounting for more than half of total variable costs. Lower-cost growers tended to be in the Red River Valley which accounts for about 25 percent of U.S.sugarbeet farms and 33 percent of U.S. beet production. Farms in the region tended to be larger than most (averaging 1,571 total acres with 318 acres of beets). The regions average beet acre returned $458.97 after cash expenses. Keywords: Costs of production, sugarbeets, Farm Costs and Returns Survey. Introduction During the winter of 1993, USDA surveyed sugarbeet growers in 12 States for the 1992 production year. Each response was statistically expanded to represent other farms of like type and size, and accounted for total 1992 U.S. sugarbeet production. This report summarizes findings from the survey. 1/The authors are agricultural economists, in the Rural Economy Division, Economic Research Service, USDA. Sugarbeet production primarily occurs in five major regions: Great Lakes (Michigan and Ohio); Red River Valley (Minnesota and eastern North Dakota); Great Plains (Wyoming, Montana, western North Dakota, Colorado, Nebraska, and Texas); Northwest (Idaho and eastern Oregon); and Southwest (California and Klamath county of Oregon). Acres planted to sugarbeets have grown significantly over the last decade. The growth can be tied to expanded capacity of beet factories and the relative financial stability provided by USDA's loan program. Inclusion of beets in the cropping rotation provides a dependable source of income, even though beet production requires more capital, labor, and better management practices. From 1983 to 1992, U.S. beet acreage expanded from 1.08 million acres to 1.44 million acres. The 1992 crop of 29.14 million net tons was the largest crop since 1976, when production was measured at 29.4 million tons. Costs of Production Costs of producing sugarbeets on either a per-acre or per-ton basis vary considerably across farms and across regions. The major factors affecting cost levels in 1992 were yields, input use, irrigation, size, and location. Red River Valley beet farms typically produce 25-35 percent of U.S. sugarbeets and heavily influence the U.S. average. This region produced beets at the lowest costs per acre (or per ton). The average 1992 total cash cost of producing U.S. sugarbeets was $26.06 per ton ($538.20 per planted acre) and the economic cost was $37.16 per ton ($767.43 per acre). Hired labor, chemicals, and fertilizers were major cost components, accounting for more than half of total variable costs. The variable cash costs totaled $20.18 per ton ($416.68 per acre). Estimated variable costs were converted to a per-ton basis and ranked from lowest to highest to form a weighted cumulative distribution of farms, production, and planted acres (Figures B-1 and B-2). Twenty-five percent of farms had per-ton variable costs of $14.72 or less. These low-cost growers accounted for about 26 percent of U.S. beet production. At the other end of the distribution, 25 percent of farms had variable costs of $24.45 or more per ton (high-cost), but accounted for only 20 percent of beet production. Variable costs per acre varied considerably among cost groups, ranging from $243.44 to $625.48 per acre. However, expected vs. actual yield differences between low- and high-cost growers were very small. High-cost growers expected 22.69 tons of beets per acre but harvested only 19.46 tons, about 14 percent below their expected yields. Low-cost growers harvested 19.49 tons, slightly more than what they expected. This suggests that despite the poor yields, costs per acre would be higher for high-cost growers regardless of weather conditions. About 40 percent of western beet growers and 36 percent of Great Plains growers were in the high-cost group, compared with less than 5 percent in the Red River Valley. Higher costs were attributed to a substantial use of irrigation. More than 80 percent of the beets in the high-cost group were irrigated compared with only 12 percent in the low-cost group. There were several distinctions between low- and high-cost growers. Low-cost growers rented less land on a share basis (14 vs. 35 percent) and more land on a cash basis (52 vs. 27 percent) than their counterparts in the high-cost group. They also used less fertilizers, chemicals, and fuel and spent less on custom work. Low-cost growers were more labor efficient, spending $91 per acre compared with $230 for the high-cost group. Low-cost growers used only 6.4 hours of unpaid labor compared with 8.7 hours per acre for the high-cost growers. Also, high-cost growers spent three times more on the hired help. Size of Farm To study the effects of farm size on production costs, planted beet acreage was divided into four categories: fewer than 50 acres, 50-199 acres, 200-399 acres, and 400 or more acres. About 60 percent of farms had fewer than 200 acres of beets (and accounted for only 28 percent of total production), while 39 percent of the farms had more than 200 acres (and accounted for about 72 percent of the 1992 beet crop). Farms in the smallest size group (less than 50 beet acres) averaged 33 acres of beets out of an average 352 total operated acres. Farms in the largest group (400-plus beet acres) averaged 601 acres of beets out of 2,665 operated acres. Twenty-five percent of farms with fewer than 50 acres planted to beets had gross farm sales of less than $50,000 (considered non- commercial economic size). In contrast, 80 percent of farms with more than 400 beet acres had $500,000 or more in farm sales. Twenty-five percent of farms with fewer than 50 beet acres, accounted for less than 10 percent of total farm acreage and 13 percent of total value of production, compared with 23 percent of acreage and 40 percent of value of production for farms with 400 or more beet acres. Production costs generally decreased with size, ranging from $975.18 per acre ($44.33 per ton) for the smallest size group to $756.58 per acre ($35.60 per ton) for the large size group, suggesting a farm size-cost relationship. Smaller size farms spent more on chemicals, fuels, and on custom work than larger size farms. Type of Farm In the 1992 survey, beet growers were asked to classify their operations based on the largest portion of their gross income. Choices included cash grains, tobacco, cotton, various fruit and vegetable specialties, other crops, and various livestock enterprises. A majority of beet growers reported other crops as their production specialty (note that sugarbeets were included in other crops). However, the smaller size farms reported relatively higher percentages in cash grains and livestock as their production specialty. Among livestock enterprises, beef cattle and hogs were common. More than half of the farms in smaller size groups (less than 200 acres) reported producing some beef cattle, compared with one-fourth of the farms in larger size groups. Dairy cattle and sheep were also reported on larger sized beet farms. Regional Variations Thirty percent of the 1992 beet farms were located in the Great Plains (accounting for 20 percent of U.S. production) while 25 percent were in the Red River Valley (accounting for 34 percent of beet production). Ten percent of the beet farms were in the Southwest region and contributed 16 percent of the beet crop. Acres planted to beets varied among regions, ranging from an average 141 acres in the Great Lakes to 318 in the Red River Valley. Relatively higher per-acre costs in the Great Plains and western regions were due to extensive use of irrigation. All beet acres were irrigated in these regions with fuel costs of $55-$91 and purchased water costs of $11-$29 per acre. Fuel costs for dryland beets (grown primarily in the Red River Valley and Great Lakes regions) averaged only $22 an acre. The Southwest and Northwest regions had the highest 1992 cash costs. Labor costs were very high in these two regions. Custom operations were more common in the Southwest, accounting for about one-fourth of the total variable costs. On a per-ton basis, the Red River Valley had the lowest costs at $33.18, while the Great Plains region had the highest, averaging $41.40 per ton. Red River Valley growers planted a higher percentage of their operated acres to beets and received more than 50 percent of their farms total value of products from beets, indicating the importance of beets to this region's growers. Southwest beet growers showed the least importance of beets, where beets accounted for an average 15 percent or less of total operated acres and value of farm products. Unit Cost Variation The cost structure can be broken down into its components to explain which of the farm's characteristics attributed most to per-unit cost variation (table B-3). The value of machines used in beet production had the greatest influence on the unit cost, accounting for 25 percent of the variation. Irrigation and fixed costs (overhead, taxes, and interest) ranked second and third in major factors affecting the unit costs; each accounted for about 20 percent of the variation. Labor ranked fourth, explaining 14 percent of the variation, followed by land rented on a share basis and fertilizers (3-5 percent). Other explanatory factors such as chemicals, custom operations, fuel, cash-rented acres, fallow practice, debt-to-asset ratio, and specialization were not significant at the 10 percent level (accounted for less than 2 percent of the variation). Among operator characteristics, beet growers involvement in farming explained the most (about 5 percent of the variation), while operator's age and education had the least influence. Other Relevant Factors The dollar amount and the number of farms receiving Government payments increased with farm size. More than 80 percent of farms with 400 or more beet acres received payments averaging $33,672 per farm, four times greater than farms with fewer than 50 acres. A majority of growers that received payments were located in the Red River Valley and Great Lakes regions, and grew primarily wheat, barley, and corn. Net cash farm income for low-cost beet growers averaged $125,632 per farm, nearly 8 times higher than that of high-cost growers (table B-4). More than 70 percent of low-cost farms were in a favorable financial position (positive net cash farm income and low debt), compared with less than half in the high-cost group. END-END-END