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Cyclone Debbie halts sugar’s steady rise

“Prior to the cyclone, crop expectations were some of the best seen in years," Nick Waters, investment director at Blue Sky Alternative Investments, told Agri Investor.

Before Cyclone Debbie hit the coast of North Queensland on March 28, sugar cane crop expectations were high as growers had expanded areas of harvest following several years of moderate seasonal conditions and rising sugar prices.

Following the tropical storm however, the USDA Foreign Agricultural Service in Canberra revised its estimates and now expects sugar production to decline to 4.8 million MT (metric tons) in 2017/18, a six percent drop compared to the USDA’s 5.1 MMT production estimate for the 2016/17 season.

The decline marks a significant trend reversal. Data from Australia’s department of agriculture shows that since the 2010/11 harvest season, which was severely impacted by heavy rainfall and Cyclone Yasi in February 2011 – still the largest cyclone to make landfall in Australia – sugar cane production has been steadily increasing, from 3.6 MMT in 2010/11 to 4.9 MMT in 2015/16.

“Prior to the cyclone, crop expectations were some of the best seen in years,” Nick Waters, investment director at Blue Sky Alternative Investments, told Agri Investor.

Breaking it into macro terms, Waters noted that gross sugar revenue from the six percent loss the USDA FAS expects would equate to around A$150 million ($110.7 million; €101.8 million) across a total crop value of around A$2.55 billion (taking 5.1 MMT sugar produced at $500/MT).

Sugarcane requires ample water to grow, but Cyclone Debbie delivered way too much of it. In fact, it delivered the highest amounts of March rainfall ever recorded in many Queensland locations, which account for more than 90 percent of sugar cane production in the country, creating flooding across swaths of land used to grow the staple crop.

“The main factor in this revised forecast is the impact of tropical cyclone Debbie on the north Queensland coast, where a significant part of Australia’s sugar cane crop is grown,” the USDA FAS said in its latest sugar report.

Though the cyclone’s impact to individual farmers in regions such as Proserpine is particularly damaging, Waters noted that “climatic variability” is a constant in tropical regions where sugarcane is farmed. The overall monetary impacts are “relatively insignificant” compared to the overall sugar cane sector, he argued.

A spokesperson for Canegrowers Australia added: “The final impact on sugar production for 2017 will not be known until all of the cane is crushed and the final impact of the storm and flooding on the CCS (cane sugar content) of the crop across the region is measured.”