WHILE the OPEC oil fall out and coronavirus pandemic continue to impact global sugar markets, the Australian sector remains firm thanks to an increase in projected yields and strong export prospects, according to Rabobank's research.

However, Rabobank’s latest global Sugar Quarterly warns there will be new challenges to navigate amidst this new environment.

In its Q1 report, the agricultural banking specialist said widespread rain across key cane- growing regions – up to 800mm recorded in parts of north-east Australia – had strengthened yield prospects for the incoming 2020 crush, however warned the risk of cyclones and floods still loomed.

Rabobank commodity analyst Charles Clack said the robust yield trajectory also had the potential to mitigate a decreased growing area over recent years. 

“The domestic cane area fell by 11 percent from 2017 to 2019, with Rabobank forecasting a stabilisation in area in 2020,” Mr Clack said.

As such, assuming higher year-on-year (YOY) cane yields, the bank forecasts the 2020 Australian cane crop at 31 million tonnes, suggesting 4.2 million to 4.3 million tonnes in raw sugar production.

While comparative to the 4.2 million tonnes produced in 2019, Mr Clack said the figure still remained below the national five-year average.

He said the Australian industry could benefit from increased export opportunities, particularly in light of the severely-decreased 2019/20 Thai cane crop, down 40 per cent due to diminishing cane area and drought.

This, he said, was forecast to contribute to a 6.7 million tonne global supply deficit in 2019/20, before a return to a small surplus in 2020/21.

“Raw sugar output in Thailand is set to reach just 8.6 million tonnes, versus 15.4 million tonnes last years, allowing exports to reach just six to seven million tonnes and maintaining Thai premiums,” Mr Clack said.

“We expect demand for Australian sugar to improve in 2020 amid this cut in Thai supplies, particularly as Asian buyers such as Indonesia, who rely on Thai imports, look to origins further afield.”

FALL IN INDONESIAN PRODUCTION

Mr Clack said a drought-led fall in Indonesian 2019/20 production, coupled with a growing appetite, could also benefit both Australian and Indian exporters.

The significant depreciation of the Australian dollar – with the AUD/USD now standing at 0.59, down from 0.69 year to date – could also bolster export opportunities, Mr Clack said, and had so far, to an extent, insulated the local industry against the sharp fall in world sugar prices.

In February, Thailand’s low production drove ICE #11 Raw Sugar futures soaring above the 15USc/lb, yet Mr Clack said the coronavirus threat, followed by Russia abandoning its oil supply pact with OPEC and dragging down oil prices, in turn saw sugar prices fall below 11USc/lb.

OPEC REPERCUSSIONS

Mr Clack said Brazil was one key sugar producer severely impacted by the Russian and Saudi Arabian oil fall out, and could potentially shift a significant volume of production from ethanol to sugar.

Low gasoline pump prices in response to oil’s slump, coupled with a decreased demand for local fuel due to COVID-19 had resulted in Brazil’s ex-mill ethanol prices falling sharply.

“The bottom line is that millers’ ethanol revenues and margins in 2020 look very vulnerable in the face of weeks, if not months, of reduced demand plus the threat of persistently-low oil prices, and a corresponding price decrease,” he said.

The global sugar price would continue to take its lead from the oil market in the coming weeks, and Mr Clack said any average ethanol prices reaching above a sugar equivalent of 11USc/lb would encourage a swing towards sugar production over ethanol.

COVID-19 CHALLENGES

Further impacts of the coronavirus crisis on consumption were difficult to predict at this stage, Mr Clack said, with Rabobank’s initial expectations indicating a large absence of global consumption growth in 2019/20 as industries including foodservice see diminished demand prospects.

“In the EU, for example, we foresee very little sugar consumption growth, due in part to the outbreak but more so the downtrend in sugar demand,” he said.

“Interestingly, the flattening demand in the EU, and globally, may be minimised by the assumption that people tend to eat more sugary and processed foods during hard economic times.”

In China – where low acreage and yields cut 2019/20 production by up to nine percent year-on-year – the negative impacts of COVID-19 on logistics and labour, leading to a delayed planting, could further decrease 2020/21 output.

Logistics bottlenecks, particularly delays in ports and borders were also expected side-effects globally, but with a prioritisation by governments on the food and agri sector, Mr Clack said food supply chain disruptions should be minimised.

www.rabobank.com

ends

By Dan Hadley >>

AS AUSTRALIANS celebrate Australia Day this week and commemorate the arrival of the British First Fleet in 1788, the fallout of a vote in the United Kingdom sees offices in Brussels being packed, flags being taken down and Brits walking out of the European Union for good.

This is a week to watch and remember and the ‘British exit’ could mark a significant turning point for Australia.

Australia forms a very important part of the Commonwealth of Britain. The relationship we continue to share is an important one, historically, culturally and economically. 

Nonetheless, Australia’s relationship with the European Union (EU) is not strictly predicated on the actions of Great Britain.

The Brexit does represent a significant shift in geopolitical as well as economic forces throughout the European region and throughout the world.

Many Australians are left wondering if this shift will have a ripple affect all the way down into the southern hemisphere.

Packing up and rolling out

As of January 31, 2020, at 11pm GMT, Britain will no longer be a member of the EU. Australia will be required to work directly with Britain in everything it does, as opposed to working through EU agreements in place for member states.

This will be true for every country currently working through this avenue. British diplomats and officials engaged in the EU are quite literally packing their offices up, ready to fly home to new assignments and roles.

Australia’s relationship with the EU

Australia’s relationship has steadily improved with the EU over the years and as such Australia has benefitted from the largest negotiated agreement ever signed between Australia and the EU, commonly known as a framework agreement, that is set to lead to a free trade agreement (FTA).

Speculation amongst politicians and economists has led to the possibility that Britain’s exodus may serve to undermine the potential for an FTA.

This would represent two decades of relationship building between European countries and Australia tossed aside.

Going back over the last 20 years, Australia has seen strained diplomatic and political engagements with European member states and the Union itself.

These tensions largely centered on the EU’s Common Agricultural Policy. Ultimately, this policy almost completely excluded Australia’s primary agricultural goods following British entry into the EU.

Australia was, for want of better words, left out of the party. Years on, this scenario has changed and the opportunity for a Free Trade Agreement represents increased opportunity for Australian produce (largely seen as high in quality) to be sold into the European market.

Exports as a whole

Putting aside a roller coaster ride of political chess play, the EU has become one of Australia’s most important trade partners – second only to China.

Furthermore, the EU represents the largest partner in two-way services trade and foreign direct investment. Despite holding a distance and isolation disadvantage, with Australia being on the opposite side of the globe, strong negotiations and steady political relationship building have seen the door to party open wider.

 This political negotiation has been, in some degree, supported by Britain. From a purely economic point of view, Australia would prefer for Britain to retain its seat at the EU table and now loses an economical and political ally at the negotiation table.

It is conceivable that we may see delays or greater friction in attaining the FTA with the EU in the wake of the Brexit exodus.

On the whole however, the UK represents an important export market for Australia in the European region. The UK is also currently Australia’s eighth largest export market and represents 37 percent of Australia’s exports into Europe.

Conversely, Australia represents just under 2 percent of the UK’s export market. It will be vital for Australia to continue to foster good economic trade relationships with EU member states while simultaneously maintaining its long-standing relationship with Great Britain.

With all this in mind, it will be important to watch where Australia ranks when Brexit is complete, and the UK possesses the freedom to commence trade negotiations on its own terms.

Australia must continue to focus its attentions on the EU and not just the UK, to maintain export demand. The Australian Government has indicated on numerous occasions that it will continue to pursue strong relationships and agreements with Europe while not conflicting its ties with Britain.

Having said the above, it’s important to note that Australia holds its own bargaining power in this chess game of trade and economics. Australia represents a very attractive market for investment for both European and British businesses within (or seeking to enter) the greater Asia-Pacific economy.

Existing relationships built on bilateral agreements have resulted in the establishment of some 2,400 EU companies in Australia over recent years.

This landscape of investment is unlikely to alter much, if at all, as Brexit goes down. In terms of goods and services exports from Australia to Europe, we may see individual companies expanding directly into Europe as opposed to an often-used model of first entering the UK market before entering the Continental EU. 

Travel to Europe and the UK from Australia

Taking a more micro look at Aussie travellers enjoying European holidays is important, as many an Aussie enjoy the relaxed lifestyle in Spain, the wine of the South of France of the cafes of Italy.

The good news, in short, is that the Brexit won’t directly affect a holiday goer’s ability to work or travel within the UK or Europe. The same rules and regulations will apply.

Dual Australian/British citizens who travel to Europe, and have previously enjoyed the EU membership benefits of ease of travel through to the continent, will need to look at changes that remove such privileges moving forward.

Summary

This week represents an important part of Britain’s history but also represents a delicate time for Australia/EU relations.

The Australian Government must make every effort to preserve the important ties and agreements in place and currently under negotiation with the EU.

Important, too, is Australia’s relations with the UK. It should not be presumed that just because Australia is a member of the Commonwealth that no effort is required to maintain good economic trade and free flowing international exchanges with Britain.

Nonetheless, the vote has been taken, the date has been set and from tonight onwards, the Australian commerce sector will set its eyes on the 28 member Union becoming 27, as of 11pm Greenwich Mean Time. 

Dan Hadley is a British/Australian economist and business management consultant for JLB based in Adelaide, South Australia.  

THE Queensland Resources Council (QRC) is participating in high-level meetings in Washington DC and Mount Isa concurrently today in related moves to help drive Queensland’s critical minerals potential to attract more overseas investment, drive more international trade and create more local jobs and economic prosperity.

QRC chief executive Ian Macfarlane is in Washington DC as part of a delegation led by Federal Resources Minister Matt Canavan’s Australian critical minerals delegation to further develop the US-Australia trading partnership on critical minerals. QRC director Andrew Barger will be attending the New Economy Minerals Summit with Premier Annastacia Palaszczuk and senior Ministers in Mount Isa. 

“Queensland will be at the forefront of the development of critical minerals for Australia and the world, whether for defence industries, manufacturing, trade and regional development,” Mr Macfarlane said. 

“These rich reserves will help support the global expansion of renewable energy and battery storage technology and the uptake of electric vehicles.”

Mr Macfarlane said Queensland’s metal industries, including bauxite and copper, was already enjoying significant growth.

“Three years ago, the metals industry supported 47,252 full-time jobs and injected $7.8 billion into the Queensland economy," Mr Macfarlane said. "Last financial year, there were almost 61,400 jobs and an $11.7 billion boost to Queensland's economy.  That’s a 30 percent increase in jobs and a 50 percent increase in economic benefit.”

Mr Macfarlane said QRC and the Queensland Exploration Council had been working with the Federal and Queensland Governments, " ... and we welcome their recent announcements to increase investment in the sector, including the commitment to upgrade the Townsville to Mount Isa rail line and an $80 million four-year subsidy for commercial freight users on the Mount Isa line".

www.qrc.org.au

ends

By Dan Hadley >>

AUSTRALIAN sugar cane growers currently face one of the most difficult economic periods in the history of Australian sugar production. India’s recent glut of sugar into the world market by primary producers has driven down the cost of sugar significantly.

India’s increased production of raw and refined sugar in the last few years, off the back of subsidies, has led to more than 30 million tonnes over the 2018/2019 year. Just three years ago this number stood at just over 20 million tonnes.

As a result, the global sugar price has plunged to a 10-year low of US$0.0983 per pound in the September period on the back of India’s announcement of an additional US$1 billion in sugar subsidies.

Market fluctuation in October have left the price back in the US$0.12 per pound which translates to just over A$390 per tonne.   

Further volatility with significant downward spikes is expected though, and this temporary relief may be the calm before a storm of medium term reduced pricing.

The competitively priced sugar from India has meant some countries cannot produce and sell sugar above the wholesale market price.

THREAT TO BUSINESSES

Where growers input costs of production are higher than the minimum market cost, Australia may see cane growers going out of business.

Cane growers and millers are essential to many jobs in regional Australia and account for an important export due to the quality of Australian farming. That aside, these recent price reductions may see a number of regional job losses and a higher use of imported sugar verses domestically produced here in Australia.

TRADE BREACH?

In response, Australia, Brazil and Guatemala have submitted a joint application to the World Trade Organisation (WTO) to establish a dispute panel to investigate whether India has breached its international trade obligations within the sector.

This application seeks to address India’s significant internal subsidies to Indian cane growers and restore market balance. These matters fall within the WTO’s international trade dispute resolution rules.

Trade Minister Simon Birmingham indicated that it was “time India was held to account for its market distorting policies on sugar”.

“We have raised our industry's deeply held concerns on numerous occasions with senior levels of the Indian Government," Mr Birmingham said.

In the meantime, Australian sugar cane growers and millers are doing it tough. 

Australian sugar produce may be deemed too pricey and left to rot leaving a sour, rather than sweet, taste in the mouths of Australian consumers.

Dan Hadley is a British/Australian economist and business management consultant for JLB based in Adelaide, South Australia. 

STRONG GLOBAL demand for coal and liquefied natural gas (LNG) has lifted Queensland’s export numbers by 13.8 percent to $87.4 billion over the 12 months to August 2019, according to the latest trade data from the Australian Bureau of Statistics.

Queensland Resources Council chief executive Ian Macfarlane said the strong result showed the ongoing importance of the resources sector to the State’s economy.

“Coal exports grew by 11.5 percent or an extra $3.9 billion while Queensland’s second most valuable export, gas is also enjoying strong volumes, with EnergyQuest’s data showing Queensland sent 8.2 petajoules of gas to other states while exporting 27 cargos of LNG worth $1.42 billion in August,” Mr Macfarlane said. 

“It’s no wonder that the Port of Gladstone is setting export records this year. Mining, along with agriculture, is a vital primary industry that creates jobs and investment. Behind every billion in export values, there are jobs in local towns, and support for regional communities," he said.

The resources industry is a partner for our farmers who are doing it very tough during drought at the moment. The resources sector works hand-in-hand with the agricultural sector to support local economies and provide landholders with an additional income stream.

“That’s backed up by figures from the GasFields Commission that show as of 2018, the cumulative compensation paid to landholders by the gas industry was more than $505 million.

“These numbers demonstrate the co-existence model in Queensland is working well with farmers able to diversify their income by allowing companies to responsibly develop gas on their land. The current drought Queensland is experiencing is distressing and while it’s not the answer, the income from LNG companies can assist."

Mr Macfarlane, who recently returned from a trade trip to China with StateTreasurer Jackie Trad said Queensland has what the world needs.

“Our sector delivered more than 80 percent of Queensland’s export earnings. In dollar terms, exports from coal, minerals and gas are worth just under $200 million every day,” he said.

www,qrc.org.au

 

THE BBC’s international commercial news division, BBC Global News, is being backed by FedEx Express in the launch of a new multi-platform series on global trade.

The series Made on Earth explores the story of the world’s remarkable and ever adapting trading networks, which help businesses reach billions of potential customers around the world.

According to the BBC, The editorial series reveals key moments, worldwide shifts and changing trends happening in the industries involved in creating eight everyday products – spices, paper, coffee, flowers, whisky, handbags, bicycles and semiconductors. From rose farmers in Kenya to florists in the UK, brewers in Scotland to bar managers in China, Made on Earth takes audiences on a journey across the world to discover the reliance on global connectivity for consumer goods. 

The commercial deal involves FedEx Express becoming the exclusive sponsor of the new TV and digital series on BBC World News – which is watched by over 100 million people every week –and BBC.com, which reaches more than 110 million unique users each month. 

To appeal to an even wider audience base, the series will also be subtitled into local languages to appear on international BBC News sites including BBC Afrique, BBC Brasil, BBC Chinese, BBC Mundo and BBC.jp in Japan, adding extra value to the deal.

As part of the partnership, the BBC has created a bespoke digital hub at BBC.com/madeonearth. The hub will feature articles, links to episodes on the BBC’s dedicated video streaming section, BBC Reel, and a series of commercial films created by BBC StoryWorks, BBC Global News’ commercial content-marketing division, which will also be available on BBC World News and on selected BBC social media handles.

Following the first run of the series in the autumn, the Made on Earth content will retain its presence on the BBC’s platforms, ensuring ongoing audience engagement.

BBC StoryWorks and Advertising executive vice president, Sean O’Hara said, “International trade plays a crucial role in providing people around the world with access to products which enhance their daily lives, so we are delighted to join up with such a prestigious global brand as FedEx Express to offer audiences this fascinating insight into the vast trading networks which shape the way in which we all live.

“This commercial partnership allows FedEx Express to tap into the global reach and credibility of BBC Global News – on TV, online and social media.”

FedEx Corporation executive vice president and chief marketing and communications officer Brie Carere said, “Global trade is our business. This strategic partnership with BBC Global News gives a voice to the entrepreneurs, manufacturers and consumers of goods from around the world and shows the endless possibilities available. 

“The unique combination of the BBC’s compelling storytelling and worldwide reach will ensure that the subject of international trade will make an impact with audiences globally.”

www.bbc.com

www.fedex.com

ends

By Leon Gettler >>

THE trade war turned currency war, between the US and China, is a misnomer.

According to Michael Every, Rabobank’s head of financial markets research Asia-Pacific, who is based in Hong Kong, it’s actually a cold war.

One that will take decades to resolve.

“Fundamentally what the US wants and what China wants are vastly different,” Mr Every told Talking Business. “This is a clash between the two that ranges from physical geography to ideology to currency to trade to economics and I simply don’t see where the middle ground between the two can be.

“One can describe it as a trade war, one can describe it as a currency war but both are merely the first stages in sub-sets in what is a much larger struggle. 

“Effectively the terms of what Trump is offering to China are open up your economy.  Make it look like the US or Japan,” Mr Every said.

“If you do that, fine, we can deal with you as one economy to another in an integrated global economy and if you won’t do that, we are going to decouple.”

Mr Every said that decoupling would be seismic shock for the global economy.

He said of all the economies that would suffer the most in that shift, New Zealand and Australia would be “number one and number two”.

Mr Every said there were already signs of this happening in Australia with the demand for coal falling and warnings from China about beef and wine.

He said all Australian exports would be affected, from tourism to students coming to study at Australian universities.

LONG TERM V ELECTED TERM

Mr Every agreed that China is playing the long game while Donald Trump’s focus is on the election in 2020.

However, he said, there are signs that this is changing in the US, not from Donald Trump himself but the people around him.

Mr Every said the recent speech given by Federal Member Andrew Hastie, in which he compared China with Stalin’s Soviet Union, was being echoed by others in the US. 

“Trump is probably the biggest dove and would be quite happy to do a deal but there are people all around him pointing out that if it can’t be done, then the US will roll up its sleeves and put on its knuckle dusters,” Mr Every said.

He said the US actually had a lot of experience playing the long game during the Cold War.

“Obviously, it’s forgotten how to do that during the last couple of decades of anything goes, and globalisation, and the belief that everyone’s a capitalist and we’re all going to get along and trade with each other,” he said.

“I don’t think it will take too long for the US to rediscover how it used to operate in the Cold War and rest back to that operating system.”

Mr Every said potentially this could lead to a mild global recession and, in a worst case scenario, it could be more severe than that.

www.rabobank.com.au

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.   

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