Low Prices Threaten Sugar Loans

Sugar prices are so low that some large processors may forfeit millions of pounds to the government instead of repaying federal price-support loans taken out on 1984 crop inventories, Agriculture Department officials said Monday.

“It’s got us concerned,” said Ross Ballard of the department’s Agricultural Stabilization and Conservation Service. “We don’t want it, but we’re willing to take it . . . we’ve shown that.”

Ballard and other department officials said a worldwide glut of sugar and the lowest prices in 15 years have put pressure on the U.S. support program, which guarantees much higher prices for domestic sugar. At the same time, import quotas restrict the amount of foreign sugar that can enter the U.S. market.

According to agency figures, the department’s Commodity Credit Corp. has loans outstanding on 484.3 million pounds of refined beet sugar at a national average support price of 20.76 cents per pound, for a total of more than $100 million. Loans on 919.3 million pounds of raw cane sugar at 17.75 cents a pound total $263.7 million.

Thus, in all, processors owe about $364 million in loans made by the Commodity Credit Corp. on about 701,800 tons of sugar, based on holdings as of Aug. 21.

In addition, the Commodity Credit Corp. owned outright some 231.5 million pounds of beet sugar that was turned over in lieu of loan repayment earlier this year. Virtually all of that came from forfeitures by Great Western Sugar Co., which, along with its subsidiary, Northern Ohio Sugar Co., filed for bankruptcy last March.

The sugar supports are keyed by law to the processors, who are required to pay prices to sugar-cane and sugar-beet producers that reflect the support levels. In all, there are only about 30 processors who get the benefits.

“There’s no way that we could write a loan to the man who grows sugar cane or sugar beets, so we have to deal with the next step up . . . the first step where the commodity can actually be stored,” Ballard said. “So we deal with the processor.”

No one is predicting that all of the sugar now under loan will be forfeited by Sept. 30, when the loans come due. But the potential is there, and that is what concerns USDA officials.

Robert D. Barry, a sugar specialist in the department’s economic research service, said there is “a definite likelihood that we might see further forfeitures” because of the low prices. On Monday, sugar for future delivery on the New York market in November settled at 20.70 cents per pound. The government’s “market stabilization price,” or objective under the program, is 21.57 cents a pound.

According to USDA economists, sugar market prices need to be at the stabilization level or higher to prevent sugar from being forfeited to the government.

“If you take the numbers, it would probably pay these processors to forfeit rather than to redeem their loans,” Barry said.

However, Barry said that there is another side to the issue that makes it more complicated than simply the current price of sugar. Many of the processors want the current federal program to continue with the supports and protection against foreign sugar.

When Congress returns next month, it will resume debate on a new farm bill, which includes an extension of the current sugar program.

Barry said that some supporters would like to be able to say that the sugar program has operated in recent years without much cost to the taxpayer. Massive forfeitures could alter that claim.

The import quota for 1984-85 was announced last September at 2.55 million tons, down 16% from 3.05 million tons in 1983-84.