USDA Details Sugar PIK

August 24, 2000

USDA expects nearly 600,000 tons of sugar to be forfeited from the 1999 crop, with 300,000-400,000 tons of refined sugar to be paid out to participants under the sugar payment-in-kind (PIK) program. Savings from the PIK program will come from the elimination of monthly storage payments and the potential for reduced 2000-crop forfeitures of loan collateral, USDA said Wednesday in a Federal Register notice.

On Aug.1,42,000 tons of refined beet sugar loan collateral were forfeited. Adding this amount to the 132,000 tons purchased on June 6, total inventory now stands at 174,000 tons of refined sugar, USDA said. "Total 1999-crop forfeitures are expected to reach 500,000 to 550,000 tons, in addition to the 42,000 tons already forfeited," according to the notice.

Assuming 350,000 tons of refined sugar are paid out under the PIK program, "this would be equivalent to 7.8% of the current 2000-crop refined beet sugar production forecast and a 120,437-acre decrease in production--7.7% of plantings," the notice said At least 6,654 producers would have to participate in the program to utilize this amount of refined sugar.

"This will impact CCC's (Commodity Credit Corporation’s) monthly storage outlays and expected forfeitures," the notice continued. Monthly storage savings will total $700,000, and CCC could potentially avoid around $160 million worth of 2000-crop forfeitures.

Under the PIK diversion, producers must agree not to harvest sugar beets for commercial use in return for sugar from USDA’s existing CCC inventory. Producers submit bids indicating the dollar value of CCC sugar that they are willing to accept to divert acres, in an amount specified by the producers, from production. The Program will be limited to sugar beet producers because of the marketing complexities that would arise with such a program for the cane sector, USDA said.

Sugar beet producers wanting to participate must provide data on (1) the number of acres that the producer will divert, (2) the dollar equivalent of the number of pounds of sugar wanted as payment, and (3) the producer's previous three-year simple average per acre production of sugar, which will require data from the grower's beet processor. Some of this information will be used to determine the value to CCC of the diversion.

Selection of participants will be based on the objective of getting the most sugar production diverted in return for the least amount of CCC inventory, according to the notice. "To do this, CCC will rank the bids and not accept any bids that, in effect, request more sugar in payment for diverting acreage than would be expected to be produced from the diverted acreage. To facilitate the effort to obtain attractive bids, a bid cap will be established, in advance, based upon the submitted data and the production expectations."

The bid cap will equal the dollar value of refined beet sugar historically produced by that acreage. To assure that a real reduction is obtained, the sugar removed from production must be under contract to a processor. Returns under the program likely will have to be enough to allow the producer to obtain a contract waiver from the processor who could then take an assignment of the sugar to be obtained from CCC, the notice said.