Grower’s Interest Matters As Sugar Price Holds Strong

By Kevin Borg, Chairman, CANEGROWERS Mackay

A grower’s interest in the sugar they produce doesn’t end when cane is supplied to the mills for processing. Cane Supply Agreements include Grower and Miller Economic Interest clauses, which mean that growers can use the marketer of their choice to forward price their sugar on the commodities-based Intercontinental Exchange (ICE).

Thus, through a cane pricing formula, growers and millers share the risks and rewards.

The arrangement is also enshrined in the Federal Sugar Industry Code of Conduct, and, in Queensland, the Sugar Industry Act 1999. The Code of Conduct, overseen by the ACCC, is a vitally important instrument, maintaining equity and certainty around regulation and expected conduct between growers, millers, and marketers.

The Code was hard-fought-for by CANEGROWERS and the Australian Cane Farmers Association (ACFA), to keep in place the transparent, not-for-profit, industry-owned sugar marketer QSL. The need for a Code of Conduct (CoC) came about as a result of the industry moving into a deregulated environment in the past decade, giving millers a potential added advantage as monopoly marketers. The CoC set out obligations for supply contracts between millers and growers, and on-supply agreements from millers to marketers, maintaining a balance in the marketing of Grower Economic Interest (GEI).

The economic interest split, broadly speaking, is about 70% GEI to 30% MEI.  From there, growers can opt to forward price their GEI out three years at varying amounts according to the certainty of harvest and supply capitalising on current strong prices into the future. Or, they may choose just to keep their pricing in line with the current harvest. Forward pricing is not unique to sugar- other agricultural commodities use the strategy. To that end, growers are making decisions on even a daily basis in an effort to maximise their income.

For the past year, sugar prices have been very strong, climbing up over the $800 per tonne to a recent April high of $842/tonne. It’s a long way from the $350/ tonne on offer in 2020. While prices remain strong, the market has been somewhat fickle of late. There are still opportunities for growers pricing their Production Risk pool if they have filled all of their target pricing. Of course, it’s important to note that while market price is riding high, the price growers actually receive is less.

There are a range of factors that influence sugar price, from the progress of crops and harvests across sugar producing nations like major players like Brazil and India, to Thailand, Australia, USA, EU, Pakistan and Russia. Further influences include ethanol production from sugar, exchange rates, Reserve Bank decisions, free trade agreements, shipping, cost of production (eg: fuel, fertiliser) to name a few.

Even the Russian war in Ukraine is an influence, as it affects fertiliser prices and is a driver OF global food inflation, with mounting pressure on grain supply. The Ukraine has been a vitally important supplier of the world’s grain- used across human and livestock food.

Indicators are that despite that recent bearish behaviour of the market, prices are remaining strong. There remains a high demand for sugar, while countries like India and Thailand grapple with a delayed monsoon, and the Brazilian sugar industry struggles to move sugar from port (where it competes with other commodities like corn) and has had reduced sugar recovered per tonne of cane this harvest, due to harvesting of immature crops.

Locally, CANEGROWERS Mackay wants to see the best for our members’ opportunity to capitalise on the high sugar price. That means getting our full crop away, currently hampered by rain events across July, and by poor mill performance. We can’t do anything about the weather, but millers can invest in their mills sufficiently to have them work reliably and efficiently. CANEGROWERS Mackay grower representatives have been highly vocal with millers in Mackay and Plane Creek on this subject.

The predicament for growers in Mackay and Plane Creek with the repeated rain events and decreased mill performance both this year and the preceding two years, is that it is difficult to make decisions on forward pricing. Forward pricing comes with a risk factor if the grower is not able to get all of that crop away. If any growers do have concerns, we urge them to talk to their marketer rep sooner rather than later to explore solutions.

‍

‍

Growers can forward price their sugar with the marketer of their choice, based on the Intercontinental Exchange (ICE). Photo credit: Kirili Lamb

‍