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November 28, 2001
9:50 AM

Can Producers Expect Lower Prices for Sugar? Ethanol Industry and Sugar Industry Officials Ask USDA to Accept Lower Bids

EI Staff Report

The American Sugarbeet Growers Association, along with the American Coalition for Ethanol have asked USDA to accept lower bids for government-owned sugar set aside for ethanol production.

USDA solicited offers for sugar in July, August and October but few bids were submitted by producers and only a handful were accepted.

The sugar-to-ethanol program was developed last May as part of a strategy to reduce market-depressing amounts of government-owned sugar stocks. The plan, according to those closely involved, was to eliminate at least 100,000 tons of Commodity Sugar Credit Corporation (CCC) sugar stocks while contributing to greater ethanol production capacity during a time of rapidly expanding demand.

However, after USDA offered three separate tenders, just 10,300 tons of the 100,000-ton total was sold and some bids were reportedly rejected for being too low. Alchem, LLC, of Grafton, N.D., was reportedly one of the largest purchasers of the sugar, taking in about 2,400 tons in the last few months. Alchem was also said to be the only dry-mill ethanol plant to succeed in a bid. Other producers that won bids include Simplot's Idaho ethanol facility and a small-scale Texas plant that uses waste-from-candy to make ethanol.

Letter to USDA
On Oct. 25, ASGA Executive Vice President Luther Markwart and ACE leader Trevor Guthmiller co-authored a letter to USDA Secretary Ann Veneman urging USDA to "review the bid process" with its policy makers. In the letter, Markwart and Guthmiller asked Veneman to "allow future bids submitted by ethanol producers to be viewed in the context of the uncertainty faced by ethanol producers as they begin to fully explore the impact of sugar on their processes."

Months ago, ACE and it’s ethanol-producing members were reportedly trying to convey to USDA officials that sugar was not worth 10 cents - or even 5 cents - a pound.

"USDA was under the impression they could get 5 cents a pound for this sugar because that's what the wet-millers were able to pay for it," Markwart told the EI. "But the dry-millers aren't set up to receive sugar. . . and I'm just now hearing about unseen capitol costs involved in taking sugar in, storing it, mixing it and so on."

Some Producers
Too Busy to Bid
Markwart, who has been in communicating with USDA officials in recent days, said part of the problem with the first three USDA tenders was simply bad timing. "Those tenders came at a very busy time for many ethanol producers, not to fault the USDA," he said. "There was so much expansion going on that many of these producers were just physically not set up to receive sugar."

In fact, officials said, many ethanol plants were under construction or expansion last summer and chose not to bid at all.

Even so, Markwart maintains that USDA sought too high a price for its sugar - an ethanol feedstock that he admitted "has no real track record” with Midwest dry-millers.

“We assumed that since USDA set aside only 100,000 tons for disposal, they would be accommodating when it came to accepting (low) bids from dry-mill ethanol producers with no experience in using sugar as a feedstock for ethanol production,” Markwart and Guthmiller stated in the letter to Veneman. “The single biggest obstacle that ethanol producers face (in participating in the program) is little or no experience using sugar, which was reflected in the conservative nature of their bids.”

Sugar Growers Respond
"We were initially very excited after (Secretary Veneman) made the announcement (about the sugar-to-ethanol program),” said Mark Webber, executive director of the Red River Valley Sugarbeet Growers Association in Fargo, N.D. “But it’s been a real disappointment to see such a small amount of sugar taken.”

The Red River Valley Sugarbeet Growers had high hopes for the sugar-to-ethanol program because the organization purchased two semi loads of sugar (from American Crystal Sugar Co.) used in a research project in Buffalo Lake, Minnesota last fall. Researchers at Minnesota Energy, a small plant that recently expanded its capacity to 16 mmgy, found that adding 4 percent sugar as a feedstock in its drymill plant accelerated fermentation of corn by two hours.

Not Competing with Corn
Initially, some corn growers groups were concerned the sugar-to-ethanol program would displace corn used to make ethanol, Webber said.

“But our research has proven that sugar actually enhances fermentation and speeds up the process, making it possible to run more corn through a plant - not less,” he said. “Sugar is never going to compete with corn when it comes to making ethanol. . . sugar as a stand-alone feedstock is too expensive. That’s not our goal.”

What’s the Next Step?
USDA may alleviate the situation, both Markwart and Guthmiller indicated, by letting the surplus sugar go for less than 3 cents a pound.

Furthermore, they said, USDA could require the purchasers of the sugar to report on their performance findings. "Then we could look at this program and say either it’s a waste of time or it's well worth our efforts," Markwart said.

USDA is unlikely to go back and accept bids it has already rejected, Markwart said, adding, “There has already been bids accepted and rejected so they’ll have to take it from where it stands now.”

But exactly where things stand now is not totally clear. The Energy Independent was unable to reach the appropriate officials handling the sugar-bidding process within the USDA Farm Service Agency, and at the time of our publication Markwart said he was waiting on USDA “policy makers,” who will ultimately decide whether to reopen the bidding process, reevaluate previous bids or put the program to rest. “Either way,” Markwart said, “USDA is not going to give an indication of what it will accept in future tenders. They still have to be careful not to jeopardize future bidding.”