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A lot to cover this month ...
Looking at the graph below, one wonders if we are entering a period of stability : a whole month during which the price was more or less 30 ¢/lb :
Admittedly the graph does not show the fine detail! The talk throughout the month was the size of the Brazilian crop as more and more analysts predicted that the crop would be substantially down on previous years. Figures of less than 500 million tons have been suggested but the big question is how that will be split between crystal and ethanol. Most are talking of less than 30 million tons of crystal. It is this which has held up the price despite the macro situation suggesting that sugar should fall like all other commodities.
Russia is forecasting a good harvest this year and hence production roughly equal to demand : something which has not been achieved for a long time. The production forecast is for 5.3 million tons in the campaign just starting, substantially up from the previous estimate of 4 to 4.2 million tons.
Europe too is forecasting a good harvest year although it would be very wrong to compare it to last year’s crop when so much of the crop was lost to freezing. France is predicting a record average overall yield of 15.4 tons sucrose/ha to produce 4.6 million tons and Germany is expected to produce another 4.2 million. The overall figure for Europe is expected to be 17.4 million tons, not far short of the production before the regime changes.
Dangote has abruptly closed the Savannah factory, ostensibly because of threats from local youths. That has to be something bigger behind the story but it is not yet obvious.
Kenya seems to have finally woken up the reality that COMESA will insist on duty free sugar imports from other bloc members next year unless the country really sorts out its industry. It is proposing radical reforms, currently going through parliament, which are designed to stabilise the industry by introducing a quality based cane payment system run by the government and prompt payment for cane.
Meanwhile a cane shortage has developed in Kenya with Muhoroni and Chemelil both reported to be close to closure [not necessarily a bad thing]. Part of the reason seems to be the establishment of a new [private sector] factory in the area and part is a general trend to move to competitive crops. The reforms mentioned above will almost certainly see Muhoroni and Chemelil close, so why wait?
Not far away, the Prime Minister has personally assured the people of Busia that the government has identified an investor to build the long proposed sugar factory there. Cane has been grown at Busia since the 1980’s but the factory has never materialised so the cane has always had to be transported to Mumias, some 40 km away.
Despite the national and international protests, it looks as if the government in Uganda is determined to grant farming rights to the Mehta group on nearly one quarter of the Mabira Central Forest Reserve. The forest is adjacent to SCOUL’s existing estate in Lugazi on the northern coast of Lake Victoria. In 2007 there were public riots which lead to three deaths over the planned grant. At the time it looked as if the plans had been abandoned but apparently not : watch this space!
In another development, President Museveni has announced a private sector initiative to develop what will become the country’s fourth estate north of Mount Elgon in the far east of the country and not far from Kenya. [Busia is just south of Mount Elgon and just on the Kenyan side of the border.]
The expansion at Nakambala seems to be paying dividends for Zambia Sugar with 376 000 tons of sugar produced in 2010 from a crop of 3.1 million tons : a very respectable 8.25 tcts. Domestic consumption was 143 000 tons so the company managed to export 233 000 tons, 32% up from the previous year’s exports. About half of the exports went to the EU, the other half to other countries in Southern Africa.
Meanwhile, the government seems confused about AGZAM, the startup company we reported on in the May 2011 news. It has announced that the company is about to harvest its first crop : a very fast start-up indeed.
Perhaps even India is embarrassed by its inability to predict the size of its crops : the Sugar Mills Association and the Federation of Cooperative Sugar Factories have jointly announced a plan to employ satellite technology to help predict crop size. The first work is scheduled to start shortly.
The government in Sri Lanka wants to develop the country’s flagging sugar industry, particularly in the north which was so badly affected by the civil war. However, its proposal to allocate one acre each to 100 farmers in the far north of the island does not seem to be particularly major step – except for the 100 families involved.
Olam, the Singapore based trader which has slowly been building its sugar asset base, has acquired a sugar factory in Maharashtra in a deal worth $74 million. One suspects that we will see more of this sort of activity in the next 12 months.
The Philippines has announced its data for the 2010/11 crop year which seems to have been a very good year : almost 2.4 millions tons produced. That leaves it clear to export at least 300 000 tons as stocks are relatively high and domestic consumption fell with the higher price of sugar in general.
Following all of its posturing earlier, Mackay sugar announced in mid August that it would not make a bid for Proserpine, the coop not far to the north of Mackay itself. However, no sooner had that happened than Cofco, the company owned by the Chinese government which has just won the battle for Tully, stated that it wanted to buy Proserpine. It then submitted an offer worth $120 million, just beating the rival offer from Sucrogen.
The board subsequently rejected the Cofco overture and again recommended the Sucrogen one but by the end of the month it has been announced that the shareholders of Proserpine had rejected the Sucrogen offer as only 70% were in favour, the constitution requiring a 75% vote for any change to occur. In theory, Proserpine now has 5 days to pay back a $15 million loan from Sucrogen which had been advanced in anticipation of the takeover.
American Crystal, the Red River Valley sugar company and largest beet sugar producer in the US, locked out its union workers at the beginning of August over a contract dispute. At the end of the month and perhaps two weeks before the start of campaign there seemed to be no end to the dispute.
In the latest round of the battle between the USDA plus the transgenic seed producers on one side and environmental groups on the other, a US judge has set a submission date which suits neither party : January 6 2012. That is expected to result in the 2012 stecklings being in the ground before an outcome is known, after which the USDA is expected to publish new research which finds in favour of ‘Roundup Ready’ sugar beets.
MEXICAN RICE BORER
The caterpillar of the small moth Eoreuma loftini might be called the Mexican rice borer but it doesn’t care what grass it infests. It has recently been found in Louisiana rice fields and the fear is that it will soon reach the sugarcane fields too. Rice farmers can control it relatively easily with insecticide because it is regularly exposed as it passes through the surface of rice stems. Cane, on the other hand, is fat and juicy and when inside the borer can just stay there.
Despite the rumours of its imminent collapse, the deal to sell the remaining [and major] portion of SCJ to the Chinese company Complant was completed on August 15 as planned. The price paid was US$9 million. The signing ceremony was a model of sweetness and light but that might have been something to do with the announcement made by the government just 4 days before that it will inject nearly US$18 million into the cane agricultural sector. So who paid whom US$9 million?
The Riopaila Castilla group in Colombia has announced that it will build a 300 000ℓ/d ethanol plant at its Rio Paila factory in the Cauca Valley at a cost of $56 million. The company is saying that it will be on line in 2013.
The Guyanese government has announced that its looking for a foreign company to run what it calls the ‘malfunctioning’ Skeldon II factory. The Minister of Agriculture is reported to have said that “Guysuco does not have the competence that it perceives to manage the factory”. It must be two years now since the government fired BT from its management role at Guysuco.
BUNGE TO TRIPLE BRAZIL INVESTMENT
Five years ago nobody in the sugar industry had heard of Bunge, a major agricultural commodity company. In 2008 and it bought T&L’s trading division and now it is the world’s second-largest sugar trader. In 2010 it spent $1.4 billion buying sugar companies in Brazil and must currently have something approaching 1.5 to 2 million tons of origin.
In August, having lost out in the bidding race for Tully, it announced that it intended to invest a further $2.5 billion on sugar in Brazil, expanding its current operations rather than developing Greenfield projects. Its target is to have a crushing capacity of 40 million tons.