The same basic sugar program has been in effect for around 25 years. “We’ve had an 18-cent raw sugar loan rate and an import quota that manages the supply of sugar in the domestic market to keep the price at a certain level,” said Mike Salassi, LSU AgCenter economist, at the recent AgOutlook Conference in Baton Rouge. “Growers don’t receive payments like those made to target price commodities.”
There are two changes in the new farm bill that will have an impact on Louisiana sugarcane growers. “First is an increase in the loan rate starting in the 2009 crop year. There will be three years of a quarter-cent increase in the loan rate which will push the price up a little.
“Second, and this important, is the overall allotment quantity. In the sugar program, there is a control of supply. In some years, that means a marketing allotment which limits the amount of domestically produced sugar that can be sold. Some states have produced sugar that exceeded allotment and were unable to sell it.”
The main reason that’s happened is when USDA has set the OAQ (overall allotment quantity) it has historically determined the amount of imports first. “They’re trying to match supply with demand. So, the domestic allotment, or OAQ, has been a last-resort calculation. In some years, growers have been squeezed.”
That’s the reason for the provision saying the domestic allotment can’t be less than 85 percent of domestic production. Hopefully, that will prevent some of the previous problems, said Salassi.
What impact will the loan rate have on the sugar price?
The way the sugar program operates, the basic 18-cent raw sugar loan rate is adjusted to the major cane states. In recent calculations, “Louisiana’s loan rate was 18.28 cents. When adding in the cost of redeeming that loan, you have what’s known as the ‘forfeiture level’ which acts as the effective loan rate. If the market price of sugar falls below the forfeiture loan rate producers can forfeit that product to the government.”
What the increase in the loan rate should do “is push the forfeiture up by approximately the same amount. One quarter of one cent — or one cent — may not sound like much. However, a one-cent increase in the price of raw sugar would mean about $28 million to the Louisiana sugar industry. So, this is a small but important step.”