8 January 2009

What Does 2009 Hold for the Sugarcane Industry?

The current international financial crisis has placed the sugar industry on the same rollercoaster as other commodities and markets, however the fundamentals of supply and demand continue to point to an international production deficit over the next two years, which in turn points to a more cautiously positive outlook for the industry in 2009.


Restructure, improved efficiencies, reduction of key input costs, international demand and a lower dollar are all likely fillips for the forthcoming season.


Peak sugarcane group CANEGROWERS has reported that growers and millers have had already had some success in securing improved prices, for at least a proportion of production, at what are likely to be profitable levels and current futures market indicators point to further opportunities.


“Improved prices may not be reflected in the crop until next year, as 2009 will continue to be part of the recovery, but we are looking at the benefits flowing through to the pockets of farmers by 2010,” says CEO of CANEGROWERS, Ian Ballantyne.


Also high on the agenda in the coming year says Mr Ballantyne, is using cutting edge technology to protect and preserve the environment, including the iconic Great Barrier Reef which is the backyard of many cane growers.

“Management of natural resources will continue to be a matter of substantial importance. Growers are embracing new technology with gusto, however intervention stimulated for a political or ideological motive, misdirects resources and energies without improving the position of any stakeholder,” he said.


According to CANEGROWERS, the year ahead is offering considerable potential, however as with farming at large, the fundamentals of the business will continue to largely depend on the whims of mother nature. “Timely rain late in 2008 and the first week of 2009 looks like mother nature’s favour has turned more towards the industry,” said Mr Ballantyne.


“That said, with some weather forecasters suggesting a higher than normal potential for ‘Cyclone Larry 2’, we hope the weather will be kind and that after many long years of expectation, 2009 will allow for better realisation of the potential of the Australian sugarcane industry.”


Sugarcane production for 2008 was a smaller than expected Australian crop of 32 million t (4.5 million t of raw sugar) and final sugar pool prices are likely to return in the order of $325/t raw sugar. The 2007 crop produced around 35 million t of cane which translated into around 4.8 million t of raw sugar.


Cane growers are cautiously optimistic about their future with the likelihood of an international deficit in production, a weaker dollar and easing input costs. Growers are hoping that sugar prices, which have been wildly fluctuating between 9 and 16 US c/lb, settle into a more positive and stable pattern.


This week’s announcement of appointment of a skills-based Board at the sugar marketing body QSL departs from the traditional composition of millers and farmers and underlines the degree of change embraced by the industry. It reinforces the level of structural change already undertaken by the growing sector. “Price risk management is the new black with innovative and flexible mechanisms now allowing both growers and millers to individually hedge price risk for at least part of future production. The option of pooled forward hedging continues.”


Fighting input cost hikes has been high on the agenda for the agricultural sector which has felt the pinch of labour shortages, escalation in the cost of fuel and chemical inputs, access to limited and expensive water for irrigation, and the well-publicised soaring cost of fertilisers. 2009 will open with an offer of some respite from these business breakers, but as is usual, the speed of increase is rarely matched by the same rate of price contraction.


CANEGROWERS will be holding a media and business briefing on 25 February 2009. Details will be circulated closer to the event.