A glut of sugar in the world market will mean a big cut in the price farmers are getting for their sugar beets, American Crystal Sugar leaders told farmers this week.
Last year's crop brought farmers $68 for each ton of sugar beets. But this year's payout will be $38 per ton, American Crystal Sugar President David Berg said.
"The main reason for it is just a complete surplus of sugar," Berg said. "The largest share of that surplus is being generated by imports we're getting from Mexico under the North American Free Trade Agreement."
U.S. farmers have also produced more sugar in recent years. The surplus sugar supply drives down prices. On top of that, this year's sugar beet crop has a lower sugar content then last year.
"That means every ton that goes through the factory incurs the same amount of cost," Berg said. "There's just that much less revenue available from the sugar that comes out of the beets."
North Dakota State University researchers say the sugar beet industry has a $4.9 billion annual economic impact in the region. Study author Dean Bangsund said two-thirds of that money flows into Minnesota, and about one-third to North Dakota.
"To the effect that sugar prices are declining or have declined relative to what they were in the past that translates into a smaller economic footprint in the region," Bangsund said. "Because it has a direct effect on the production economics and the dollars that are being collected from sugar beet production."
That means farmers will have less money to spend. Berg said many will lose money on this year's crop.
"I like to believe that they understand that agricultural markets have ups and downs and they make decisions not because of a one year gyration in the markets," he said. "But growers aren't going to keep raising beets forever if they're losing money at it."
But NDSU Agricultural Economist Andrew Swenson said low sugar prices have happened before. He expects the market to stabilize.
"I don't think this is the death knell of sugar beets in the [Red River] valley or anything like that," he said. "But it's definitely a bump in the road and folks are justifiably concerned."
Earlier this year American Crystal turned sugar over to the federal government rather than pay back government loans, an action permitted under the farm bill.
Berg said he hopes sugar prices improve so that next year, the federal government isn't the best market for this year's sugar beet crop.