Sugar supply shortfall sees global prices soar to three-year highs

June 8th, 2016


Category: Sugar

sugar(ABC News) – The global sugar price continues its bullish run in futures trading, topping 19 US cents a pound for the first time in more than three years.

A worldwide supply deficit has seen the sweet commodity in hot demand since the start of the year, when prices started at 15 cents a pound.

“It’s been a long time between drinks, but we’re very happy that its back at these levels,” Queensland Sugar Limited (QSL) chief executive Greg Beashel said.

With the Australian dollar sitting around US$0.74 in trading on Thursday, the raw sugar price equated to close to AU$560 a tonne, a jump of 36 per cent year on year.

Poor growing conditions in Thailand and India have meant the world is “very short of sugar”, with the current supply shortfall expected to continue next year as well.

Additionally, rain has hampered the Brazilian harvest, although the full impacts on yields and crushing downtime are yet to be realised.

Mr Beashel said picking the peak in the market remained the “million-dollar question”.

“We’ve got a situation where the speculators have got a very big position in the market and we expect over the next little while they might take some profits,” he explained.

“That profit taking will probably cause a bit of a dampening of the big spikes we’ve seen over the past week or so.”

Marketing saga stops growers cashing in

Many cane growers are unable to cash in on the market jump because supply contracts have yet to be finalised.

After a bitter battle over marketing rights, Queensland Parliament passed legislation late last year forcing millers to provide growers with a choice of marketer for what was termed “grower economic interest” sugar.

The change has affected the cane supply contracts between milling companies and growers, along with the agreements between millers and QSL over the flow of raw sugar itself.

The delay in securing contractual deals for the next season has proven to be a frustration for many in the industry, particularly growers wanting to forward sell.

“QSL’s view is that this arrangement can be implemented with very little change to how things operate right now,” Mr Beashel said.

“We’re ready to go now … I’m expecting something will happen very soon with MSF Sugar.

“The ball is in others courts about what happens in the Tully and Wilmar areas,” he said.

“We have an agreement that we’re ready to sign, I expect they will have some different views about some of the terms in that agreement.

“Our motivation is to get this done as soon as we can.”

Competition between QSL and millers to market raw sugar

Under the new legislative regime, QSL and milling companies will compete for the business to market “grower economic interest” sugar.

Bundaberg Sugar, Isis Central Sugar Mill and Mackay Sugar have committed a combined 600,000 tonnes of raw sugar to QSL for the three seasons from 2017-2019.

That figure marks a significant drop on the two million-plus tonnes QSL will market this year.

Mr Beashel remained confident in securing additional support from growers who supply MSF, Tully and Wilmar despite the foreign-owned millers wanting to leverage their own global marketing base.

“We’re hoping that through these on-supply agreements that we’ll be able to get substantial more tonnage to market going forward,” he said.

“We need to present a proposition that wins their business … it has to be as attractive as possible to growers.”

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