OVERVIEW 3
SECTION 1 Foreword By Brian O Connell, Editor, Australian Sugarcane Brian O Connell. W elcome to the 2009 Australian Sugarcane Annual. At this time and in this space last year I was reflecting on the Chinese adage may you live in interesting times. This is very definitely not meant to be seen as a blessing, it s more a curse. In the 2007 08 season we had been very much under the influence of a backhanded blessing with drought, frosts, unwelcome exotic disease, plantation timber in the wrong places, rain at the wrong time and the usual price volatility. Well you would have to say that 2008 09 has been interesting but pretty much for all the right reasons. Sure we had the global financial crisis, but early in the piece the Brazilians went for ethanol production and the Indian farmers moved away from cane production. Demand did not go away so consumers, faced with limited supply, began to drive the price up. By mid 2009 the price spike was well and truly on, driven largely by a looming supply shortage caused by the dry in India the failure of the monsoon season and the wet in Brazil more rain than normal over harvest. In 2008 09 many areas suffered rain delays at harvest. In Queensland they finished late but were generally satisfied with the result it was OK. Queensland harvested around 30 million tonnes of cane producing 4.3 million tonnes of sugar. New South Wales harvested 1.93 million tonnes of cane in 2008 09 after suffering frosts, floods and delays at the mills. The area harvested overall was down some 15 000 hectares on 2007 08 a continuation of a disturbing trend but a trend that may be reversed this coming season with better prices on offer. The Future It seems that the prospect of these better prices rises will not be dampened by the global downturn. According to CBA Agri, economic indicators are on the move again this time trending back up. GDP in the US is up 3.5 per cent on an annual basis. In Japan industrial production has surprised positively in September and manufacturers indicated that they planned to continue to raise production in October and November. Outside Japan, emerging Asia continues to expand, with continued solid growth in China. There are global sugar supply concerns with lower production in India due to the dry the failure of the monsoon - and problems with the wet in Brazil rain continues hamper the harvest. So 2009 10 is looking very much like a very good time to be taking off a high yielding, high quality cane crop at home. We have been enjoying a relatively uninterrupted harvest District 2008 09 Harvested area (hectares) Tonnes of cane per hectare Tonnes of sugar per hectare Tablelands 7250 95.2 13.7 Mossman 7330 72.3 10.0 Mulgrave 13100 82.7 11.6 Bundaberg Sugar Coastal North Mills 24160 78.5 9.8 Tully 22710 86.4 11.2 Herbert 55060 85.2 11.5 Burdekin 69890 109.4 16.3 Proserpine 21830 79.1 11.5 Mackay Sugar Mills 72930 71.6 10.1 Plane Creek (Sarina) 16700 70.4 10.2 Bundaberg Sugar South Mills 20010 77.9 10.6 Isis (Childers) 13580 84.8 11.5 Maryborough 9660 63.6 8.6 Rocky Point 3310 69.6 9.1 Queensland 357,510 84.4 11.8 New South Wales 14,670 131.6 15.4 Total/average 372,180 86.3 12.4 AUSTRALIAN SUGARCANE ANNUAL 2009
and are well positioned to supply into a buoyant market. The global financial crisis did have one positive effect for our local industry. MIS forestry schemes suffered a set back which, while not good for investors, has seen a slow down in the planting of plantation trees on cane country. The urban encroachment by residential and commercial development may have slowed slightly but it will continue. Research and Development 2008 09 saw the Australian Sugar Industry Alliance (ASA) propose the merging of the BSES and SRDC into a restructured BSES. They believe this will deliver cost efficiencies and a more focused and efficient outcome. There is also the prospect that Sugar Research Limited at Queensland University of Technology may in the future be incorporated into the restructured entity. On another front in the research world the industry is facing some potentially very dire consequences. There are scientists who believe that soil, nutrient and chemical runoff from agricultural and municipal land is having a very detrimental effect on the Great Barrier Reef. Although these findings are disputed, Queensland Premier Anna Bligh believes voluntary self-management has not worked. During the latter half of 2009, the State Government introduced legislation that will affect all farms in central and northern Queensland. Farmers are continuing to depart the industry but the higher prices have seen a general improvement in optimism. And let s face it, irrational reef regulations aside, I would much rather be where we are now than where we were a year ago. Good luck to all in 2009 10. n SECTION 1 AUSTRALIAN SUGARCANE ANNUAL 2009
SECTION 1 Sugar prices to remain high in 2009 10 By Max Foster, ABARE W orld sugar prices have been booming since late June 2009, largely in response to less than average rainfall from the 2009 monsoon in India, a key sugar producing and consuming country. On September 14 2009, the world sugar indicator price (Intercontinental Exchange, no.11 spot, fob Caribbean) was US22.5 cents a pound, below the US25.02 cents a pound reached on August 31 2009, which was the highest nominal price for nearly 30 years. Looking ahead, the world sugar indicator price is forecast to average US16.5 cents a pound in 2009 10 (October to September), compared with an average of US15.5 cents a pound in 2008 09. This forecast reflects larger world sugar production in 2009 10, particularly in Brazil, and the anticipation that a recovery in Indian sugar production in 2010 11, which is Daily world sugar indicator price expected to weigh on world sugar prices as the 2009 10 season advances. A concern with any sharp rise in the price of a commodity is whether or not it is being driven by speculation, rather than fundamental supply and demand factors. Past experience has shown that speculation-inflated price levels are not sustainable in the long term. Given the recent rapid increase in world sugar prices, there is a possibility speculative buying has been a significant contributory factor. World sugar production to rebound in 2009 10 World production of sugar is forecast to recover to 166 million tonnes in 2009 10, which is 11 million tonnes higher than in 2008 09. Increases in production are forecast for most major producing countries in 2009 10, particularly in Brazil, offsetting a forecast poor harvest in India. Sugar production in Brazil depends on the extent to which cane production is diverted to ethanol production. Brazilian cane production is forecast to increase by a further eight per cent in World sugar indicators 6 AUSTRALIAN SUGARCANE ANNUAL 2009
2009 10. Domestic and export prices for ethanol in Brazil are forecast to increase in 2009 10, broadly in line with forecast increases in world oil prices. But forecast sugar prices suggest the proportion of sugar cane used in sugar production will increase to 44 per cent in 2009 10, compared with 39 per cent in 2008 09. This would break the trend of increasing cane usage for ethanol since 2002 03. Consequently, Brazilian sugar production in 2009 10 is forecast to increase by 12.5 per cent, to a record 45 million tonnes. This takes into account the official long-range forecast for spring in Brazil of above average rainfall, which could cause lower sugar content in cane. The 21 per cent below normal rainfall from the Indian monsoon in 2009, combined with a general disenchantment with sugar growing in India because of factors such as slow payments for sugar, mean Indian sugar production is likely to increase only slightly compared with the poor 8s Brazilian sugarcane production and allocation SECTION 1 AUSTRALIAN SUGARCANE ANNUAL 2009 7
SECTION 1 World sugar production by region w7 SUGAR PRICES TO REMAIN HIGH harvest of 2008 09. Indian sugar production in 2009 10 is forecast to increase to 18 million tonnes, 1.2 million tonnes higher than in 2008 09 and 12.7 million tonnes below the record output of 2006 07. Reform in the European Union of sugar arrangements under the Common Agricultural Policy is now largely completed. EU sugar production is forecast to increase slightly in 2009 10, following the large declines in each of the previous three years. US production of raw sugar in 2009 10 is forecast to be 7.3 million tonnes, which is 400 000 tonnes higher than in 2008 09. Beet sugar production is forecast to contribute the bulk of the increase in 2009 10, rising to 56 per cent of total US sugar production. Varieties of sugar beet that have been genetically modified to be tolerant of a particular type of herbicide are estimated to make up more than 90 per cent of total US sugar beet plantings in 2009 10. High prices limiting sugar use in 2009 10 World demand for sugar is characterised by low responsiveness to changes in sugar prices. Annual growth in world sugar consumption This explains why world sugar prices increase (fall) sharply in response to shortfalls (surpluses) in world sugar production, as prices act to constrain (encourage) use and bring supply and use into balance. World consumption of sugar is forecast to grow by 1.4 per cent in 2009 10, compared with one per cent in 2008 09. This is slower than the average consumption growth of 2.6 per cent a year over the 10 years to 2008 09. World sugar exports are forecast to be a record 51.9 million tonnes in 2009 10, compared with the previous record of 50.9 million tonnes in 2008 09, though there is evidence high prices are deterring imports by some countries. The current high level of world sugar trade reflects the domestic production shortfall in India in 2008 09 and increasing dependence of the European Union on sugar imports. But the increased import requirements of these two economies of around three million tonnes in 2009 10 are likely to be more than matched by increased export availabilities in Brazil in 2009 10 of around five million tonnes. Lower world sugar stocks-to-use ratio in 2009 10 Given current expectations of world sugar production and consumption, world carryover stocks of sugar are forecast to recover slightly to 61.9 million tonnes in 2009 10. But the ratio of closing stocks-to-use is forecast to decline to less than 38 per cent, which is the lowest since the 36 per cent in 2005 06 when the world sugar indicator price averaged US15.8 cents a pound, or US17.2 cents a pound in current (2009 10) US dollars. Favourable sugar returns in Australia The rising world sugar prices mean favourable returns to Australian cane growers in 2009 10, despite the recent appreciation of the Australian dollar. The average return to Australian growers for cane in 2009 10 is forecast to be $43.40 a tonne, compared with $30.78 a tonne in 2008 09 and $26.39 a tonne in 2007 08. Following the removal in 2005 of the legislated single desk marketing powers over raw sugar exports from Queensland, Queensland Sugar Limited (QSL) stills markets around 95 per cent of Queensland s sugar exports. The indication at September 14 2009 for the season pool offered by QSL for 2009 10 production (harvested in the second half of 2009) was $467 to $507 a tonne, IPS (International Polarity Scale), compared with $335 a tonne IPS, for 2008 09 production. At the same time, the indication for QSL s aggressive pool for 2009 10 production was $436 to $476. The return to millers and cane growers in any year also reflects returns from long-term contracts and from markets in which import tariff quotas are applied (the United States and the European Union). 8 AUSTRALIAN SUGARCANE ANNUAL 2009
Sugar outlook 2007-08 2008-09 s 2009-10 f % change World Production Mt 167.3 155.0 166.0 7.1 Brazil Mt 30.7 40.0 45.0 12.5 Consumption Mt 161.3 162.9 165.2 1.4 Closing stocks Mt 69.7 61.8 61.9 0.2 Change in stocks Mt 5.2 7.9 0.1 Price USc/lb 13.7 15.5 16.5 6.5 Australia Area 000 ha 381 380 379 0.3 Production kt 4763 4634 4603 0.7 Exports kt 3493 3394 3321 2.2 value A$m 1006 1217 1586 30.3 SECTION 1 Since 2005, QSL has enhanced the marketing alternatives it offers to sugar millers and cane growers. These enable sugar millers and individual cane growers to lock in prices for at least part of their potential sugar and cane production in Australian dollars up to three years into the future. For example, as at September 15 2009, the Proserpine Cooperative Sugar Milling Association Limited was quoting cane prices to growers for 2010 production of $47.51 to $47.85 a tonne of average quality cane at 14.25 per cent contained content of sugar (CCS); $41.25 to $41.58 a tonne for 2011 production; and $37.04 to $37.35 for 2012 production. Positive finish to Australian sugar crop in 2009 10 Australian cane production in 2009 10, the harvest of which commenced in June 2009, is forecast to be 31.3 million tonnes, down 0.4 million tonnes on 2008 09 and the smallest Australian crush since 2000 01, largely because of reduced plantings. While cane yield potential may have been adversely affected by floods in some regions in early 2009, the generally warm and dry finish to the season has probably been favourable for both cane yields and sugar content. Australian sugar production is forecast to be 4.6 million tonnes in 2009 10, which is similar to 2008 09. Australian sugar exports in 2009 10 are forecast to be 3.3 million tonnes, down 2.2 per cent on 2008 09. Reflecting the effect of higher prices in Australian dollar terms, the value of Australian sugar exports is forecast to increase by $370 million, to around $1.59 billion in 2009 10. Cogeneration of electricity in sugar mills The Australian Government legislation on renewable energy targets (RET), enacted in August 2009, potentially provides a boost to cogeneration of electricity in sugar mills, using bagasse and cane harvest waste, whereby electricity surplus to sugar processing is exported to the national electricity grid. The RET scheme legislation, which is to be supported by complementary legislation in the states and territories, establishes a target of 20 per cent of Australia s electricity supply by 2020, or 45,000 gigawatt hours, to be derived from renewable resources. This represents a four fold increase over the previous Mandatory Renewable Energy Target (MRET) set in 2001. The RET scheme (and previously the MRET scheme) guarantees a market for additional renewable energy generation, using a mechanism of tradeable renewable energy certificates. From ABARE Publication Australian commodities vol 16 no 3 September quarter 2009. n AUSTRALIAN SUGARCANE ANNUAL 2009 9