Sugar Roadshow reveals future prices and grower diversification

That was the sentiment of Rabobank associate analyst Pia Piggott at last Wednesday's Sugar Roadshow conference at Mackay's Windmill Motel.

The Sydney-based analyst, who focuses on horticulture, vinoculture and "all things sugar", shone a light on the year that was across the sugar industry, with a promising look towards the future.

Addressing the Mackay sugar industry, Ms Piggott said through talks with local growers, she had surmised that there was a "really good crop" on the horizon.

"There were potentially some issues with stand over into the next season. That could be a potential issue but overall, the fertiliser farm import sector looks so much better," she said.

"The Australian dollar is still pretty weak, so that's really positive."

One of the key topics addressed by Ms Piggott was Australia's first bio-fuel plant that is currently awaiting construction approval for Townsville.

The $600m project, is still in its early stages, awaiting building approvals that are expected to see construction commence later this year.

The Sustainable Airline Fuel plant is expected to open up more production avenues for growers, and tackle the airline industry's 2 per cent global greenhouse gas emission rate - on par with that of Germany, the seventh largest carbon emitter in the world.

"(The airline industry's emissions) has actually risen a bit more to that 3 per cent...for aviation it's not so easy to be green," Ms Piggott said.

"In terms of fuel efficiency and operational efficient, we've seen the likes of Qantas replacing their fleet for more efficient, fuel efficient planes...(and demand for flights) isn't going down any time soon.

"The other option is for the aviation industry to offset, and that is what some celebrities have been doing. But...it puts the problem and obligation of reducing emissions on a different industry entirely."

Ms Piggott said while purchasing carbon credit unions is cheaper for airlines than producing SAF, in the long term, alternative fuels are a more feasible option.

"If they're going to sign up to these target setting programs, they're not going to be able to purchase offsets from outside their supply chain, which makes the aviation industry particularly difficult to abate because there's not so much offsets going...whereas with (the agricultural industry), there's plenty more opportunity," she said.

Ms Piggott said another option for the aviation industry's emission reduction could be the implementation of alternative engines, utilising hydrogen, which could take another decade to develop and another 10-20 years to replace a fleet.

"We're really only left with SAF - and so because of this, we're expecting a very significant growth in the SAF industry, similar to what we've seen in the bio-diesel industry around the world...the current volume of SAF production globally is about the same size as sugar production around Australia," she said.

"We're expecting in the next five years that the production is going to be eight times itself. What we've seen most recently is the delays to production...this might take a few more years...but there's definitely a very steep incline of capacity of SAF.

"One of the most differences between conventional jet fuel and SAF, is SAF has multiple different feed stocks that can be used to produce the material. Most of this is going to come from fat and vegetable oil, particularly cooking oil...but in Australia we don't have those volumes of cooking oil (compared to Asia and Europe) to produce what we need."

While 75 per cent of SAF will require fat and oils, the next highest option is utilising fuel made from sugar cane and other starch sources, making up 8 per cent of SAF demand.

"The difficulty we have now is the future of SAF in Australia is really uncertain because there's no legislation in place to mandate the use of SAF. It's three to four times more expensive than conventional jet fuel," Ms Piggott said.

"The only company that has set a target for using SAF is Qantas. They said by 2030, 10 per cent of their fuel has to come from SAF. That should put in some demand, but because it's not legislative or definitive, those targets can be moved...we do need that government mandate for SAF production and its use in the aviation industry.

"If we do see some policies and intervention by governments in this space, it could be some upside for sugar cane and other industries like canola and other crops and grains."

Ms Piggott said while there needs to be government and airline mandates on the use of SAF, and regulations to drive demand, it was a positive sign for diversification for sugar growers.

"It should diversify their demand and bring more demand domestically which is good. So growers aren't as impacted by the fluctuating prices of the global market," she said.

"CSIRO estimates the carbon reduction potential from using sugar is about 65 per cent compared to canola which is about 18 per cent."

Ms Piggott said the expectation was that SAF can move from a 10 per cent threshold to 50 per cent, with the possibility of reaching 100 per cent with the right regulations and practices.

"If regulation is focused on emissions reduction, then sugar cane should really win as a feed stock in Australia because it's the most available and has the supply chains and most of the benefits that say canola doesn't have," she said.

"CSIRO is expecting this will increase a demand for sugar by about 10 per cent. While structural demand might not change dramatically over the next few years, there's still potential for there to be a significant domestic demand base for Australian sugar cane and to decrease that reliance on the international market, which is a positive because it should drive overall demand and drive prices higher."

Ms Piggott said 2023 had been a "roller coaster" for the sugar market.

"We're back where we were about a year ago but we've reached above $900/tonne...we had a record Brazilian market," she said.

"Our forecast for this year is for the price range to be between 22-23c, which is a little bit higher than what is currently on the future's market.

"The speculators are expecting white (sugar) to be scarcer than raw sugar in the coming future.

"We're expecting a very small deficit of less than a million tonnes, that's under the assumption that consumption is growing about 1 per cent, which is what it's been about on average for the past five to 10 years.

"Production is quite stable. There's a small deficit and still lots of unclear wildcards like La Nina and India could play into that."

The price forecast for Australia is expected to reach about $700-$800/tonne over the year.

"Sugar prices have come a full circle this year. We've been through a bit of a roller coaster up to about $900/tonne now back to about $700/tonne," Ms Piggott said.

"We're expecting sugar prices are going to range between that $700-$800/tonne into the next year which still should really be positive for growers to lock in a good margin."

Looking across the globe, Europe's beet production is "quite stable", but area expansion in the Ukraine could result in a quota on the imports from Ukraine to incentivise exports elsewhere.

In Thailand, 2023 saw a poor crop and low quality cane, but with the expectation of expansion of a rebound to 11.5m tonnes this year.

In India, the country's export export has expanded into ethanol, and Brazil has continued to show a positive sugar price parity and an increase in sugar crystallisation, despite low rainfall - 30 per cent below last year's totals which resulted in a record sugar cane crop.

"In Australia, we had mostly favourable conditions...around the 5-6m crush is really positive," Ms Piggott said.

"The Red Sea crisis...is increasing the difficulty to import to African countries.

"With the current ethanol prices, significantly below sugar prices, we're expecting that we're going to see sugar max in Brazil...with ethanol production stable to declining."