The Australian sugar industry is now a deregulated market, however it does not operate as openly or transparently as say grains or cotton. Growers have cane supply agreements with their local mill. Growers now nominate a physical marketer which is usually either the Milling group or through commercial arrangements with Queensland Sugar Limited.
While pricing differs between milling groups, grower suppliers in most cases can access the ability to price a significant portion of their production. The sugar market is relatively sophisticated in terms of the facilities and products available to manage price risk.
So how is Australian sugar priced?
Over 95% of Australian sugar produced is priced against, or with reference to, the Intercontinental Commodity Exchange (ICE) No.11 Sugar futures contract (a US based contract). This means that the ICE11 contract heavily influences the final returns producers and millers receive along with movements in the Australian Dollar and premiums. Gaining an understanding of how the market works and its underlying price drivers is extremely important in your marketing decision making process.
Farmarco has been providing marketing and price risk management services to grain growers since 1985; cotton growers since 1990; and sugar growers and millers since 2007 and continues to be one of the leading advisory firms. Farmarco’s services in sugar range from publications and pools (in some regions) to client advisory for millers and growers.
There are any number of reasons that sugarcane growers, millers and consumers (buyers) use Farmarco however some of the common ones are:
Marketing is not easy and they want help;
Marketing effectively is time consuming - there are many other aspects of their business that require attention;
They like to have sounding board and a second opinion on the market and strategies;
They prefer to let those who concentrate on the market full-time either have influence in their decisions or effectively do their marketing for them;
At the end of the day they understand sugar is a high value commodity and managing price swings is important to longer term profitability.