The Southern Minnesota Beet Sugar Cooperative in Renville, has been a driving force in our communities for the past 27 years. It has been a powerful co-op, with 547 growers and approximately 120,000 acres.

Living  in  this area, it is a known fact that agriculture touches all of us. When farmers have a good year, we all benefit. This past year's beet harvest will no doubt have an affect on our communities. No one is quite sure as to the extent of the affect.

It looked as if 2000 would be an above average harvest, but as we all well know, mother nature cannot be controlled or predicted. Estimated beet harvest for 2000 was 2.3 million tons, with 10.8 percent of the rotten beets going right back into the land.

Shortly after full harvest began, area beet farmers were hit by an early, hard frost. Warm, rainy weather followed. Not a good environment for beets. The combination of the frost and warm weather caused the beets to deteriorate. There was a tremendous stress on the cell structure of the beets that couldn't be determined when they were brought in. In a normal situation, beets can heal themselves following a frost, but it is not normal to have temperatures in the teens followed by temperatures in the 70s.

"The frost hurt the beets in the ground and piles during full harvest. The dehydrated beets were damaged severely by the frost. The rainy, warm weather lead to their deterioration, to the point some could not be processed," said Al Ritacco, president and CEO of SMBSC.

The rotten beets are being removed from the piles, both at the beet plant and piling stations, and being hauled to farmer's fields. Ritacco estimates there will be 250,000 to 400,000 tons being deposited back into the fields. That also depends on what the weather brings in the next few weeks. The beets do not hurt the land, in fact, they will add nutrients to the soil, but that is not much of a consolation for area farmers.

Driving near the massive piles of beets at the plant, you can see the steam rising, and there is no way to stop the process, even with the cold weather we've been having. 

To add insult to injury, sugar prices are low, actually the lowest they've been in 25 years. Farmers aren't getting the revenue per ton that they anticipated. According to Ritacco, it costs an average of 18 cents per pound to produce; market value is around nine cents per pound. 

Tariff rate quotas and the United State's agreement with Mexico all have a hand in sugar prices. Many countries, including Brazil, the Dominican Republic and Australia import sugar into our country; the quota at present is 1.25 million tons.  This quota can be exceeded if there is a shortage or crop disaster, but cannot be lowered per the agreement.

Adding to that is the North American Free Trade Agreement with Mexico. Mexico is allowed to import up to 25,000 tons to the states, or what their excess production is over their consumption. At one point that figure was only 7,500 ton, but now can reach 250,000. This agreement is currently being negotiated. If the world market drops, Mexico can bring in more sugar. So what we're facing now is an over production and an unpredictable over production.

About 20 percent of the sugar consumed in this country is imported. British sugar traders have set up operations in Canada, in where they "stuff" molasses with sugar to the United States. Once it is across the border, they use a process to extract the sugar from the molasses. This adds sugar to the market and causes
the prices to go down. This practice is being challenged in Congress by industry leaders. This process is also being challenged legally.

Low prices are also hurting producers in other states: four Amalgamated Sugar factories were sold to farmers in Idaho; four factories are for sale in Michigan; six owned by Western Sugar are for sale; and seven Imperial Holly Sugar factories are for sale.

Another factor affecting sugar prices was the stock of one million tons of sugar forfeited to the government in 1999. About 270,000 tons were returned to growers in 2000 as payment-in-kind for destroying an equivalent amount of sugar production. SMBSC growers destroyed about 11,000 acres out of approximately 120,000 acres planted. The remaining 700,000 tons still held by the government are still hanging over the market.

It's not a pretty picture. Some of the sugar that has already been produced has a lower sugar content. When good sugar turns into "non-sugar." The same amount of sugar can't be extracted. 

The cooperative is trying to estimate what the total loss to farmers will be, but there is no exact formula to predict that number. 

The combination of poor market prices and rotten beets will no doubt have a negative effect on farmers as well as the community. "It's going to be tough on our communities. Farmers are still going to patronize local business, who will have to find ways to cut costs too," said Randy Kramer, a farmer from Bird Island.

What challenges are share holders facing? What impact does this have? The average grower in the co-op has about 200 acres of sugar beets. One share in the company commits you to one acre of beets. When a grower becomes a member, he commits himself to this fact, for every share he owns, he brings in one acre of beets. 

Equity is built up in the company  through the selling of shares. When SMBSC expanded its operation from 100,000 acres to 120,000 acres, shares sold anywhere from $1,250 to $1,350. 

According to Ritacco, shares are owned by the growers, the co-op doesn't get involved in trading of shares. The board of directors, however, has the right to approve any transfer of shares. 

Once the crop comes in, the plant will get a good idea of what it will take to run it through the process under normal conditions, and they will have an ideal what the selling price is. From those factors, they can estimate what the payment to growers will be.

The board of directors, made up of 19 members, gathers all of the information and then decides what payments to growers will be.

A certain percentage is paid out that fall. By January another payment is made. In February, in a normal year, about 65 percent is paid out. Total beet payment is settled by the end of the fiscal year.

"What happens in the end is all the money goes back to the growers. As a co-op, growers pay a "unit retain" which is up to eight percent of that payment. This can be used by the company to help fund working capital and other things. This is rotated back to shareholders about every four-and-one-half to five years," said Ritacco.

This past year, though, in a meeting held this January, the growers and lenders were advised that there would be no more payments to shareholders. Payments are made per ton of sugar. Normal tonnage per acre is 20. Payments have ranged from $14 to as high as $52 per ton, with an average of $35 to $30.

Kramer said that they were first told payments would be about $30 per ton, which is about the break even point for growers. "We were told at the end of January that the payment would be $19.68 per ton. We were also told that we might have been overpaid too, so we might owe them some money yet. 

"Anything break even or below, comes out of the grower's pockets. "Hopefully, that will be by the end of March," Kramer said. 

It's all a guessing game at this point. According to Kramer, under normal circumstances, where there is a hard frost, the beets were able to heal themselves. They were unusually dry this past year and not able to heal. Some of them even started growing once they were in the  piles.

So far, farmers have been denied crop insurance, because the crops had already been harvested. That is another issue the beet plant is working on. 

"We have to be optimistic, though. We wouldn't be farming if we weren't. We all have to stick together and plant this year. We've gone through tough times before, growers have to dig down deep and ask what they can do to cut costs and get through this," according to Kramer. 

The message from lenders is clear; "Don't over react." Duane Remer, regional vice president of Farm Credit Services, said. His company is looking at this as a one time, weather related event. "The worst thing that could happen is an over reaction, it could cause some serious complications.

"Farm Credit Services is looking at each individual one-by-one. The major concern is how far did some farmers step back and what the plan is to move forward. "There's too much at stake not to go forward. We're an agricultural community, and it brings a lot of dollars into our community," said Remer. 

Lenders are concerned, and rightfully so. "This last year wasn't good at all, anyone can tell you that. We were shooting for somewhat of a break even price to begin with, but when you drop that commodity income by about half, it tightens up a lot of balance sheets and cash flows."

No one involved directly with this issue really wants to portray a devastating "doom and gloom" picture. The general consensus is that they want to move forward in the best way they can. It is important to focus on the positive and pull together. 

"The good things are that the factory is functioning the way it should be, the way it was designed for. It looks like sugar prices are going to move up too, and we're looking for help from insurance companies," said Ritacco.

Farmers are looking at a good moisture level from the rains and all of the snow we've received. That's a big help come planting time. "We have to stick together and keep the plant together. The impact on our communities is tremendous. We all have to dig down and find ways to cut costs and get through this," said Kramer.