Ag Week: Minn-Dak cuts beet pay to $35 per ton By Mikkel Pates 5/2/16
WAHPETON, N.D. — Minn-Dak Farmers Cooperative has announced to shareholders the gross payment for beets will be reduced to $35 per ton for the 2015 crop.
If that holds, that’s a cut of about $250 per acre from the initial price projection, or about $75,000 for an average-sized 300-acre grower — a disheartening cut of roughly $29 million from what was initially projected.
“It’s not good news,” says Kurt Wickstrom, president and CEO of the company. “At the same time, we took unprecedented measures this year to try to maximize what we could from the crop payment.”
Dry, warm beets
Beets went into the piles drier than in other years, and quality stayed poor even when the company got into deep-frozen beets, Wickstrom says.
The co-op had a strong yield at 26.5 tons delivered on 115,000 acres, or 3.04 million tons of beets harvested. After the harvest was complete in October, the co-op initially projected $46.50 per ton, with a $3 per ton “contingency” amount held back, for a net of $43.50 per ton.
Wickstrom says the board approved an “aggressive” payment level, in part because shareholders were suffering from the effects of lower commodity prices for other rotational crops such as corn, soybeans and wheat.
Theoretically, there was “some upside potential from the $46.50” level, Wickstrom says. “When you’re counting on one particular crop to carry the load, and something happens and that crop isn’t there, it’s very disappointing.”
At the time of the December annual shareholders meeting in Fargo, N.D., projections still seemed on track. The company was projecting discarded beets would be less than 40,000 tons. But by February, the $3 contingency was probably removed because of beet deterioration in the sixth-warmest winter on record, and perhaps the warmest since the co-op was formed in the early 1970s.
By mid-March, the payment projection was cut again — this time to $40 per ton, after the quality of frozen beets decreased. In most years, when the co-op gets into its fully-frozen beets it starts to see an increase in sugar content, an increase in raw juice purities, and an increase in extraction. In March, there was an initial “bump” in sugar content, but within two weeks it was clear those beets would not have the traditional improvement in quality and sugar content.
“The only thing we can attribute it to is the warm winter, and even though the beets are fully frozen, they had more time to respire than in past years, because they weren’t fully frozen until later in the year,” Wickstrom says.
On April 13, management contacted the board of directors to announce the beet payment would be significantly cut again, to the $35 per ton level. The board of directors is made up of shareholders-producers.
If the $35-per-ton payment is realized, it would produce about $927-per-acre gross, which is just shy of $940 per acre, with a smaller crop but a higher per-ton payment. The break-even price for farmers is in the $950- to $1,000-per-acre range, depending on the growers and their individual costs, Wickstrom says.
The company dumped more than 220,000 tons of beets this year — spreading most on fields. That includes 50,000 tons to cattle feeders as “chips” that provide a feed source, but the cattle producers are unable to take more than they have. The discards are “pretty much comparable to the worst year we’ve had,” Wickstrom says.
“I shudder to think what they would have been if we hadn’t done some of these other things to do what we could to maximize the slice rate and prevent as many discards as possible,” he says. Some have wondered whether the company could have discarded more earlier, but that would have meant a further reduction in the beet payment, he says.
There are natural comparisons between Minn-Dak and American Crystal Sugar of Moorhead, Minn., which is expected to pay about $44 per ton — about $9 per ton more than Minn-Dak.
“Generally speaking, the co-ops in the valley, we work together to try to learn from each other to maximize the payment for all shareholders,” Wickstrom says. The best comparison is in the Moorhead, Minn., factory district for Crystal, because 100 miles north, the weather and beet quality are different.
“Our beets were very dehydrated,” Wickstrom says. “In certain parts of the Crystal market, most of the growers pulled most of the trucks (with tractors, as they moved through the fields) so most of their beets weren’t dehydrated.”
Minn-Dak will likely consider whether to prevent harvest until the temperatures are 60 degrees or less, rather than the 65-degree range they’ve used in the past. They’ll let long-term weather forecasts — not simply traditional dates around Oct. 1 — to dictate when to start full harvest. That will make it more difficult for shareholder-growers and the company itself to schedule harvest-time crews.
“We cannot afford to take the risks and have this type of a result again,” he says. “We want to make things as convenient for our shareholders as we can, but if we don’t get cold winters, that convenience comes at a cost. We learned that.”
Among other things, the co-op could decide to reduce the amount of time between topping of beets and lifting. There will be three more piles “ventilated,” meaning they have tubes and forced air through them when ambient temperatures provide the cold, deep-freeze level. That means 70 percent of the beets will be in the so-called deep-freeze status, compared with 55 percent this year. The growers have agreed to invest $6 million in that equipment.
Based on that level of ventilation, the co-op should be able to handle a crop of 3 million tons, without the discards and deterioration in quality.
American Crystal has invested in additional “carbonization” capacity in it’s plants, which allows them to process poorer quality beets in most factories.
If Minn-Dak wanted to increase carbonization technology to the level of Crystal’s Hillsboro, N.D., factory, (a “sister” factory initially built with the same plans) it would cost $10 million in the factory itself and $30 million for a new lime kiln. The co-op is not likely to ask producers to invest in that, given the current cash-flow situation in farming, Wickstrom says.
Shareholders recently invested about $70 million in extra molasses desugarization equipment, which will provide a good return on investment. They’ll invest $6 million in the ventilation fans, tubes and electrical. The co-op members also invest another $9 million in a “wet electrostatic precipitator” — equipment to meet federal Environmental Protection Agency coal emission standards.
Minn-Dak will have a shareholder meeting in May to discuss the efforts made on the processing season and the lessons learned. The date for the meeting will fit around planting.
The slice campaign is expected to take place in mid-May. Based on the planting schedules, it appears Minn-Dak could be headed for a healthy crop.
“If there was one thing we could change that would have the biggest impact on the payment, it’d be normal winter weather,” Wickstrom says. “It feels like Mother Nature got ahead of us this year, and as much as we tried, we could not scramble and get caught up.”