Cane pricing options
Cane Pricing Options - Risk management
QSL, after extensive negotiation with milling companies, and consistent urging from canegrowers, has developed a number of sugar price pool options. CANEGROWERS has been pursuing development of these mechanisms to give growers an opportunity to better manage cane price, to be less reliant on the seemingly random fluctuations in futures markets and AUD/USD exchange rates. These options will not necessarily deliver ‘better’ returns but they will give growers a chance to structure their risk. The pricing options developed by QSL are aimed to better match individual growers differing financial situations and preparedness to take risk. Growers will be able to adopt a conservative approach, be aggressive, commit future year’s production or seek early payment. Growers have also been seeking greater transparency to give them confidence that the final prices received have been achieved through the implementation of an agreed, objective strategy. The possibility of ‘interference’ in the process must be eliminated. The Pricing Pool insert in this edition provides an overview of the range of pricing options, while giving an explanation of how pool operations work more generally. More specifically QSL will establish arrangements for: • A Long Term Pool which will seek to secure agreed sugar prices for part of projected production in future seasons. • An Accelerated Pool which will allow growers to receive a larger proportion of achieved sugar price immediately following the harvesting season. • An Aggressive Fixed Tonnage Pool which will pursue a more aggressive pricing policy using futures, bank instruments and currency options. • An In Season Pool which will operate similarly to the current discretionary pool and which will be the default mechanism for sugar (and cane) pricing. Individual grower pricing using the SMPS and other mill supported arrangements will continue to be available. The information provided will be complex and confusing for some and I doubt that there will be a rush to participate in these various pools in the initial seasons. CANEGROWERS will undertake to educate and inform its members and to provide advice to those negotiating for them. There is considerable work now to be done with mills to provide for appropriate contract arrangements. CANEGROWERS will be considering the contractual implications and will be developing options for regional negotiations. The options provided by QSL are only relevant if your milling company is prepared to extend them to growers. The contractual arrangements must continue to be between supplier and processor, with the processor committing the sugar equivalent to the selected pool to cover the grower’s pooling decision. Mulgrave and Mossman are not in the QSL pool, so cannot participate and to date, several mills have yet to indicate that they are prepared to offer these arrangements. Only CSR has publicly committed to act as a conduit between grower and QSL pools. The development of different price risk management pools means that growers can begin considering whether the pools are relevant to their needs, or whether the general or In Season Pool, which presents the balanced approach, is still the most appropriate. I believe that the pooling options represent a great opportunity for growers to better manage their own affairs, not to be tied to the single, or mill determined option. It will, however, take some time before most growers have sufficient understanding, knowledge and confidence to embark on a multi pool, multi season pricing strategy. This will come however. Ian Ballantyne, CEO
Download Cane Pricing Options Fact Sheet (410KB)
This above fact sheet outlines some of the options that may be accessed by growers to assist manage cane price risk.
