Sugar prices surge to 19-month high, bringing relief to Australian farmers

Global sugar prices have surged to a 19-month high, bringing relief to struggling Australian farmers. The rally is attributed to rising oil costs and political uncertainty in Brazil, the world's largest producer of sugar.

Raw sugar has risen sharply in the past few weeks to reach 21.10 US cents (30 cents) a pound, after slumping to 13.36 US cents (19 cents) a pound in June. The increase comes as Brazil deals with a poorly performing crop and a run-off presidential election that could have widespread implications for several commodities.

Relief for farmers

In North Queensland, Canegrowers Tully chairman Bryce Macdonald said the stronger-than-anticipated market had given farmers some breathing room.

"We might be able to put some money in the bank and [feel] a bit more comfortable when we go to buy fertiliser or chemicals," he said.

"It will give some comfort to some farmers for those expensive inputs, particularly fuel."

Market analysis

Chief executive of Green Pool Commodities, analyst Eder Vieto, said the recent rally was driven by a recent crop report out of Brazil that showed the volume of cane crushed was down, which was expected.

"What wasn't expected was a big drop in the sugar mix as well, and their sucrose content just remained very poor," he said.

The sucrose content refers to the yield of the crop based on how much sugar is recovered during crushing, while the sugar mix is the proportion of a mill's sugarcane processed into raw sugar for food versus ethanol for fuel. Mr Vieto said heavy rain forecast for October suggested the lower sucrose levels and lower volumes were likely to continue.

"It's going to get worse from here," he said.

With low sucrose levels and high oil prices due to conflict in the Middle East, Mr Vieto said it was advantageous for Brazilian mills to make ethanol instead of sugar.

"Even if they do manage to extend the crop and crush more cane, that will be done at lower sucrose and sugar mix levels than expected before," he said.

The first round of the presidential election was narrowly won by right-wing senator Flávio Bolsonaro, who faces incumbent President Luiz Inácio Lula da Silva in the run-off.

Mr Vieto said government spending and fiscal policy had been a major focus of the presidential campaign.

"The next question is, indeed there is a change in power in Brazil from 1st of January … are we going to see a different approach to fuel pricing?" Mr Vieto said.

Farmer's perspective

Sugarcane farmers are relieved to see the market rally after months of extremely low prices. Innisfail cane farmer Josh Oldarno was hopeful the market strength would hold.

"It's got a bit of a way to go, but it's in the right direction, which is a huge positive," he said.