Could Forfeitures Be On The Horizon?

The Farm Bill mandates that the U.S. Department of Agriculture (USDA) manage sugar policy in a way that avoids crops being forfeited to the government in lieu of loan repayment—and the taxpayer costs associated with such actions.

While it is almost unheard of for U.S. sugar producers to default on the government operating loans they take out annually and repay with interest, concerns are growing among some sugarcane producers that deflated raw sugar prices this year, combined with elevated input costs, make loan forfeitures a real option this summer.

One of those farmers is Wallace “Dickie” Ellender, who has seen the financial shortfall on the horizon for some time.

“Raw sugar prices have been in the cellar for months and are below our projected breakeven point,” he told the National Association of Farm Broadcasters in May. “If the USDA brings in more unneeded foreign sugar right now, it would only push prices lower, which would lead to even bigger financial hardship for our growers, and could actually lead to a taxpayer expense.”

Ellender noted that while raw prices have recently risen out of the forfeiture range where they hovered in for much of the year, additional imports would only drive prices back into the danger zone.

And he wants the USDA to know that higher input costs mean producers can still find themselves below their breakeven levels even when prices are above the traditional forfeiture range.

His observations corroborated a study conducted by Louisiana State University released in early June. The data revealed cane farmers in the state continue to lose on average $70 per acre after paying land rents and production costs.  Farmers would need to receive 24 cents per pound of raw sugar in order to make ends meet, LSU estimated.  June raw sugar prices averaged just 22.5 cents per pound.

The scenario is even worse for producers who are suffering the ill effects of recent hurricanes.  The lower yields brought about by the storms can push the breakeven point as high as 28 cents for some Louisiana growers.

With prices expected to be too low to turn a profit, the outlook remains grim for farmers with loans coming due in late summer. More than $60 million in loans are still outstanding in Louisiana alone, and those loans will mature at the end of August and September.

“With these loans maturing, clearly now is not the time to cave to demands for additional imports,” Ellender said in reference to the lobbying campaign being waged by industrial sugar users to pressure the USDA to bring in unneeded sugar and send prices even lower.

Ironically, the food manufacturers behind the lobbying campaign are currently cashing in.

“That’s the most infuriating part,” Ellender said.  “While Louisiana growers are struggling to break even, some of the big candy companies that are turning big profits are lobbying to push our sugar prices down further.”

Dean Martin, assistant vice president with First South Farm Credit, has felt the same way since he began receiving more and more calls from Louisiana farmers regarding their financial dilemma.

“Seeing neighbors go under is never easy, but it’s even more difficult when you’re reading headlines about good times on the other side of the equation,” Martin wrote in an April article.  “For example, we’ve recently seen reports about Hershey’s posting a 20 percent increase in profit during the first quarter.”

“I don’t fault Hershey’s or any other food manufacturer for turning a profit—after all, that’s why people go into business,” Martin wrote.  “But driving suppliers into the ground to pad profits is bad business.”

And this isn’t the first time food manufacturers have tried this stunt.

When the USDA increased sugar imports by 300,000 tons last August, raw sugar prices began to drop. That wasn’t enough for industrial sugar users.  Still claiming a sugar shortage, the users pleaded for an additional 1 million ton import increase last fall.   Thankfully, Ellender said, the request was denied.

If 1 million tons of sugar had been allowed to cascade onto the market, the country’s sugar surplus rate would have surged to an eye-popping 22% of consumption, a level that would have led to producer losses and millions in taxpayer cost because of widespread loan forfeitures.

Ellender is fearful a similar fate could await growers if the food companies’ current request is granted. He hopes the USDA will look at the past and agree that claims of sugar shortages are as wrong today as they were last year.

“The USDA shouldn’t be pressured to help these guys make even more money on the backs of our farmers and taxpayers,” he concluded.