Things are finally looking up for cane farmers

Last year, Queensland cane production fell due to crop losses from flood, drought and disease. February's flooding particularly hurt farms near Ingham.

It was a bitter blow after years of prices so low that many farms operated at a loss.

But sweeter yields are ahead.

Crop conditions are currently good. An early finish to last season's harvest means the 2010 crop has had longer to grow, promising a bigger yield. Cane production could be 10 per cent higher and sugar output up 5 per cent on 2009 when sugar content was at 30-year highs, industry group Canegrowers says.

Other big positives are that world sugar prices are high after drought and floods cut sugar output from India and Brazil, the world's biggest sugar exporters; the marketing system now enables growers to better manage risk; and there is the prospect of industry development that could come if CSR spins off its sugar business into Sucrogen, as planned early this year.

CSR's sugar division is Australia's largest sugar refiner. CSR's board has been criticised by farmers for focusing on its aluminium and building products divisions and letting the ball drop when it comes to sugar.

While conditions appear increasingly positive, many cane farmers could now opt to cash out, having become weary of the climate risk and the income volatility that some say is worsened by government agricultural policy favouring big agribusinesses over small farms.

Australia is the world's third-largest sugar exporter but growers say national cane output has probably peaked and the industry's farmers and mill operators are adjusting to likely capacity of 33-35 million tonnes of cane, up from weather-hit 2009's 30 million tonnes but well off its 40 million peak.

Canegrowers chief executive Ian Ballantyne says the industry has witnessed a huge rationalisation in the past seven years, with the number of cane farm owners falling by 40 per cent to about 3800 from 6500, and he suspects that in the next few years up to 400 farmers could exit.

The stayers will be able to use the recent price surge to invest in machinery and farm practice upgrades.

Bigger farms are emerging. Owner numbers are down 40 per cent but farmed cane acreage is down just 15 per cent.

"The potential is there for a good 2010 crop and we're looking at sugar prices which in Australian-dollar realised terms are at 30-year highs. It's for one contract only but the facts are that sugar prices are at the moment offering growers returns of around $500 a tonne of sugar and that's a price I've never seen in my 20 years of the industry," Mr Ballantyne says.

"Costs have gone up, too, but there's no question prices are very attractive and generally speaking we'll see a substantial amount of recapitalisation in the industry as a consequence.

"But these stronger prices mean we may now lose those people who've been hanging on until they view a better price for assets. So I think aggregation will continue.

"We'll probably see some small expansion of production (from 2009), but only small. We've seen that restructuring and aggregation on the grower side and we're now starting to see aggregation and a restructuring of the milling businesses."

Mr Ballantyne says 50-60 per cent of Australian growers' 2010 production is now covered by contracts at "strong, profitable" prices. And the outlook should be "pretty strong" into 2011.

"The outlook this year is quite good. Touch wood. We have a relatively good base crop and now we'll wait for the weather."

Growers are also keeping watch on bid interest in CSR's sugar business.

Chinese state-owned Bright Food wants to buy the business. CSR has said its preferred option is to proceed with spinning it off into Sucrogen. Some analysts say Bright Food could be joined by other bidders before or after the demerger. Cane farmers say the best outcome is that the owner operates it as a discrete operation, with an Australia-based board focused on developing Australia's sugar industry.

"We've been big supporters of the CSR demerger, and the reason we even tried to acquire the business in the past is that we're very keen to see a sugar-focused board, for that board to focus on developing the business and its supplier relationship," Mr Ballantyne says.

"The fear is that Bright Food would roll this component of the business into its larger conglomerate and run it from Shanghai."

Bright Food, in its disclosure of bid interest, said it could offer an equity stake to growers. It said buying CSR Sugar would be a "first step in further developing Australia's sugar industry", saying significant investment in milling and refining infrastructure would benefit cane farmers.

But Canegrowers say farmers' support for any bid would hinge on firm commitments on how the business would be managed, as well as on keeping favourable marketing arrangements.

Growers strongly support CSR's current marketing arrangements, organised through Queensland Sugar Ltd which is part-owned by canegrowers.

"We have transparency of the operations. Most importantly, we're able to use the Queensland Sugar balance sheet as the basis for our hedging and pricing for growers. The question we'd have for Bright Food would be how and what methodology would be used for pricing and managing the growers' risk – would we continue to have access to a balance sheet and continue to have the flexibility that growers currently have in their approach to pricing?"

source: news