Sugarcane
Cropping
Sugarcane
- Output $65m est. Down 11% yoy.
- NSW sugarcane yields 35% above national average.
- Indian carryover stocks remain stubbornly high.
Sugarcane production dropped back to the lowest level in 5 years in 2019-20 with lower plantings and drought affected yields impacting farmers. Sugar content in NSW grown sugarcane was still below the national average however, was one of few production regions to record an increase. Global sugar markets remain somewhat overwhelmed by large carryover stocks in India, and COVID-19 lead to direct and indirect impacts on the market through declining sugar consumption and lower ethanol prices respectively. Some production issues in South East Asia may help to support export opportunities and support local prices going forward in the short term.
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Production
Sugarcane growers were susceptible to the ongoing dry conditions in 2019-20, with production down across the Australian East Coast, with the exception of the Mackay-Proserpine region. Production impacts were generally greater the in southern production regions, with Southern Queensland and Northern NSW down 23% and 20% respectively. In NSW the area planted accounted for approximately half the decline, with the other half attributed to lower yields which came in at 111.53 tonnes/ha of cane in NSW. Nevertheless, NSW still achieved yields 35% above the national average yields 41.
Sugar prices
- Spread (LHS)
- Spot price (LHS)
- Sugar futures price (RHS)
Source: Quandl (2020), DPI (2020), RBA (2020)
Price
Local spot prices averaged an increase of 9% in 2019-20 however, ended the year at $397/tonne which is down 40% from the most recent significant peak in October 2016 72.
Sugar prices were hindered by global stock levels which were starting to be drawn down and worked through the system, with prices responding over the second half of 2019 and early 2020. However, COVID-19 dented sugar prices once again as consumption slowed, with strict lockdown restrictions in the food service sector, and in the case of India, labour shortages and disruption to port operations reduced exports 9.
Trade
The value of sugar exports (solid form) from NSW increased by a substantial 42.1% in 2019-20 however, when taking into account the major production regions of Queensland sugar, exports were up a more modest 14.7% nationally year on year. NSW exports were valued at $2.74 million in 2019-20 with a further $873 thousand in further refined molasses exports 94.
New Zealand is typically an important export market for NSW produced sugar (solid form) at $1.63 million and 50% of national sugar exports to New Zealand by value originated from NSW in 2019-20. NSW also found a rising export niche to the United States and Mexico, helping to bolster export values as significant exports to more traditional markets in the Pacific and South East Asia which mostly declined 94.
Global ending stocks and future prices
- Global ending stocks (LHS)
- Avg. futures price (RHS)
- 10 year avg. ending stocks (LHS)
Source: USDA (2020), Quandl (2020)
Macroeconomic Conditions
Global stocks of sugar have been rising sharply over the past decade, led by domestic stocks in India, which accounted for 36% of global ending stocks as at June 2020 138. Some competitor producers attributed the oversupply to a range of complex factors including India’s subsidy policy where farmers are incentivized under the state set Fair and Minimum Price (FRP) arrangements for sugarcane 97. India had begun drawing down on its inventories with an estimated 9% drop in stocks over 2019-20. However, fundamental demand issues and logistics problems as a result of COVID-19 slowed this progress.
The drawdown on inventories in India was incentivized by the India’s subsidy program aiming to support 6 million tonnes of sugarcane exports. Indian sugarcane and sugar miller subsidies are currently subject to investigation by a World Trade Organisation dispute panel, on the claims that the arrangements are distortionary 87.
Forecast
The sugar supply situation in India looks set to continue over the short term with India’s ending stocks forecast to rise 9% in 2020-21, offset by a modest 2% fall in global ending stocks. While down, these levels are still elevated compared to the ten-year average 138.
Brazil’s sugarcane mills had been responding to market challenges by decreasing the sugar to ethanol production ratio to historic low levels of 34%. Since oil and ethanol prices have more recently slumped due to COVID-19, analysts have forecast Brazils mills will bump up sugar production ratio to approximately 46% in the new season, which could lead to up to 10 million tonnes of additional sugar exports 126.
Offsetting this could be the easing of import restrictions in Indonesia and Thailand due to lower than expected domestic production, leading to a source of potential import demand from Australian mills 9.
Overall however, increased production, export competition from Brazil and India, lack of demand for ethanol and ongoing COVID-19 disruptions to typical sugar consumption demand is likely to keep prices constrained in the short term.
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