SUGAR PRICE WOES,
AFTER a stellar run last year the world sugar price is back down to earth – around its long term average – following a huge sell off by traders and speculators.
This week it had recovered from large falls last week, and is now trading around $420 a tonne.
For a time it had been closer to $400 a tonne, on a nexus with growers’ cost of production in many cases.
The sell off, said QSL general manager of trading and risk Dougall Lodge, was driven by Brazil. Currency factors, a political scandal and movement in the petrol price with implications for ethanol production, had triggered the sell off.
Analysts now expect a surplus of sugar around the world, probably in the order of 3-4 million tonnes.
An oversupply is against the usual pattern, said Mr Lodge, in which a two-year deficit is followed by a four-year surplus.
“But unfortunately what’s happened due to a cycle of ratooning in the cane and a lot of government involvement in setting cane prices around the world, is that low world market prices don’t necessarily translate to lower production.
“In other commodities peo- ple can switch to other crops quite easily within one year but sugar cane has a longer term cycle.
“So if people make a decision to plant more cane based on high world prices, but by the time it’s the first harvest, or second or third ratoons then there’s an abundance of supply in the market.
“That’s where the futures market can actually take some of that volatility out of the market.
“We’re lucky in Australia – we’re the only place where growers can price forward their cane for three years. Everywhere else the government literally sets the cane price.”
For one reason or another, it seems many of Australia’s sugar rivals have got their cane producing really cranked at the moment. Monsoons in South-East Asia re boosting production, the EU has somehow managed to nearly double production compared with recent years, and Brazil is producing more.
The ongoing sell off by speculators has been the equivalent of the Australian industry expanding by five times in one year — massive.
Sugar has been one of the worst performing commodities this year so far compared with one of the best last year.
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