Talking Trade: How Middle East Conflict and Oil Prices Hit Sugar

Oil jumps, sugar slumps, and every cane grower is left asking the same thing: what actually moves the price from here? We sit down to unpack the March 2026 global sugar market update, starting with the shock coming out of the Middle East and why a surge in crude oil can ripple straight into farm-gate reality through freight, fertiliser, fuel and broader cost pressures. If you’re watching margins tighten, this is the context you need before making any big calls.

Transcript

March Update And Market Volatility

SPEAKER_00 0:08

Hello, welcome to the Kane Growers Marketing Information Service Update for March 2026. This is Dougal Lodge and Doug Morrow here to give you a quick update on what's been happening in the global sugar market. And it's certainly been volatile, hasn't it, Doug?

Middle East Tensions Lift Energy Prices

SPEAKER_01 0:22

Yeah, it it it is. I mean, if we start first on what's happening in the the outside markets, uh, you know, it's all about uh Middle East tensions and US and Israel initiating a strike against Iran, and the key result of that is just an explosion in energy prices. I think most people are aware that uh a fair chunk, if 20 percent, if not more, of global oil supplies comes through the Straits of Humuz, and that's closed. And as a result, um, since the beginning of the conflict, we've seen oil prices rise, you know, as of this morning, as much as 50%, up to, you know, 110 US a barrel for for Brent. So I mean it's a pretty significant rise. Um, you know, and that's going to have some fairly widespread impacts on, you know, uh everything from, you know, petrol prices to freight cost to fertilizer. And I think we can go into that a bit more, but that's really, you know, the the the the main the the main driver of what's happening in the in the geopolitical world is that is that tension in the Middle East.

SPEAKER_00 1:32

Yeah, I know we talk about this in our business essentials that we don't know where the market's going. And so, yeah, we are a price taker in the sugar market. And this is just another great example, I suppose, is you know, the last time I think we were here, I was sort of looking at my my numbers earlier, in 12 months, I think the Aussie dollar per tonne sugar prices dropped about$200 a ton. So it's uh certainly been a bit of a roller coaster ride. You know, we've come from you know 50-year high prices and we're now here at levels which are probably below the cost of production for for most of the districts across Australia, unfortunately, and and this is how volatile the sugar prices are uh in the world market, unfortunately.

The Commodity Cycle And Low Prices

SPEAKER_01 2:08

Yeah, and I think I think Doogle, if we just throw into that these agricultural cycles, particularly for you know commodities like sugar, uh, you know, we we certainly know we can't predict the timing, but you know, generally what we see is high prices followed by low prices. High prices lead to, you know, higher production, muted demand, you know, um planting decisions, you know, by the big producers. And you know, as a result of that, we've seen an explosion of supply and a pretty serious decline in prices. And you know, the question really is now how long how long this current downtrend is going to stick around for.

SPEAKER_00 2:43

Yeah, I know we probably want to get the good news out first, Doug. So I think, yeah, certainly you mentioned the high oil prices. Uh one of the consequences of that will be ethanol parity in Brazil. And so the good news is we're coming into the start of their season, which will be in May. So fingers crossed, we might see a little bit more diversion of cane towards ethanol. I think um the numbers that I'd seen, you know, the other day were that, you know, at I think um even$70 a barrel, it was about 18.5 cents a pound. And I think, like you're saying, if it's over 100 bucks a barrel, then we're talking 21 cents a pound is the equivalent uh sugar parity for ethanol. So we're talking five or six cents a pound better income uh returns for the Brazilian producers if they do um you know transvert transfer to ethanol. It's not quite as simple as that, though, is it? Because Petrobras is uh is going to have to actually follow that that market price for oil eventually. But that's the theoretical decision that you know Brazilian millers will be making, won't they? They'll be looking at this and going, geez, do I do I divert a bit more to ethanol and it therefore will reduce the sugar uh production side of things? You're right, Dougal.

Speculator Shorts Meet Producer Selling

SPEAKER_01 3:51

It it is, you know, on the face of it, really good news for you know US cents a pound sugar prices. But in reality, you know, there's a bit more that needs to happen before those parity calculations that the mills are facing in reality happen. We we we've seen oil prices, global oil prices rise by 50%. But as of now, Petrobras, which is the Brazilian national oil company, we haven't seen them raise domestic fuel prices yet. So in reality, the parity hasn't changed. The theoretical parity is rising, but we need to see Petrobras following. And um, you know, politically that's a sensitive issue. No one wants to see. I know the Brazilian government is always reluctant to raise prices in a in an environment where cost of living pressures are around. So will we watch that closely? The Brazilian crop doesn't kick off in earnest until April, May, and that's really the important period for that parity calculations when the Brazilians are looking at it. But, you know, it's certainly good news. Um, and it certainly means that, you know, there's a chance that diversion to ethanol this year is uh is is larger and that you know the the max sugar production we've seen over the last couple of seasons may be, you know, and it's been a huge weight on the sugar market, maybe that sort of lifts a little and we can see some respite from the current price declines.

SPEAKER_00 5:18

I suppose another quite positive um outlook, even though it's been negative so far, is the speculator short position. The second so that that's a net sold position where the speculators have been selling the sugar price quite aggressively over the past uh few months, and they're now sitting on their biggest uh net sold position, I think, in history, just about at the moment. So they've been very aggressive sellers. I suppose, you know, theoretically that's a bear market uh environment, but these these speculators do have to buy back, don't they, at some point. So you know, if something does happen rather dramatic on the geopolitical stage, or you know, there's a risk-off type approach, that could be positive for sugar prices too, I suppose. That's that's another potential positive scenario.

SPEAKER_01 6:02

It is potentially positive. I think on the flip side, Dougal. I think we have to remember that the producers globally this year are way behind on the pricing that they need to do. Um, the speculators have got in first and got you know got the the the sold position. So I think um uh the producers need to sell. So initially at least, if the funds and the speculators start covering their short position or their sold position, the the risk is that that just you know leans into producer pricing, which they need to be catching up on. Um having said that, um, you know, it it's unlikely at this point, given given what energy prices are doing, it's unlikely that the the producers are going to lean into the current prices. They're they're likely to wait as long as possible. So, you know, it's almost a game of chicken here. Um, and we'll see who blinks first, the the specs who need to cover their shorts or the or the producers who need to sell.

SPEAKER_00 7:01

Yeah, it's an interesting one, isn't it? Because I think if you look historically, I know here in Australia we look at our forward pricing capability and you know, um I think we all look look back with hindsight and wish we'd probably done more pricing now at those higher price levels. Uh but we're not we're not own on our own, though. So other producers I think have had similar situations where their percent priced going into the current seasons is actually historically very low as well. So it's it's really interesting. And you know, I know growers out there are probably you know giving themselves a bit of a kick that they should have done more, but what we can probably let you know is that the Brazilians and the Thai's and the Central Americans, all these other big producers that are out there, they've also come in with very, very low percent um sold positions. So I think Brazil's sitting at about 20% sold when it went, whereas you know, historically the last couple of years, they might have been up near like even 80% um sold going into the the new crop at this time of year. So uh what I suppose you're saying, Doug, is that because they haven't done much selling, anytime the price pops up if the speculators start buying, or there's a reason we've got a pretty big sizable selling pressure that's going to come onto the market from the producers out there who have to sell their sugar futures at some point. Is that right?

SPEAKER_01 8:15

Yeah, and I think it it it then really comes down to the timing, does it? We you know we know that um the speculators need to buy back, they'll either do that in an outright sense or they'll be rolling that position further down um uh further down the the futures contracts. Um and at the same time you know the the the producers need to sell. So those two um factors are gonna really weigh one against the other, and and uh it's really gonna be who is more aggressive earlier, because you know, we we certainly can make an argument that the speculators, when they move, they generally move together and the signals that they're reading are similar, so you could see um you know uh some upside in the short term, but again, the producers are gonna be offsetting that. So I'm just a bit worried in the short term that that's gonna be a bit of a stalemate, and and it really is gonna come down to what's happening in Brazil as we move into the new crop as to what the Brazilian mills are actually going to produce, because it's hard to make an argument that prices can rally until the Brazilians are minimizing sugar production relative to ethanol, which is the complete opposite of what we've seen for the last two to well, probably four or five seasons, to be fair. Five years, I mean maximum maxing sugar, haven't they? So that that's really the key in the short term, and that's why those decisions by Petrobras, which we're yet to see, and um I know that the marketers and and the you know the sugar traders are watching that earnestly because that that that's the signal, you know, for the mills to actually, you know, potentially change. As it stands today, sugar probably still returns better, but that's sort of an artificial calculation as of now.

Supply Response And Demand Worries

SPEAKER_00 9:53

As you look back at the overall supply and demand situation at the moment, I think you know, we've sort of talked about how low prices usually encourage lower production eventually and then higher prices produce um you know more production. I think we have seen a supplier response a little bit. Um I think you know, certainly the European beet outlook is a couple of million tons lower, I think, year on year. I think we've been hearing that the UK has even been uh offering planting disincentives, so offering farmers uh you know basically payments to not be planting beet and to help them get into other crops. I think in Thailand, I think we've been hearing that their crop's gonna be down at least a million tonnes of sugar, uh, again, because cassava prices are better than cane this year. So we so we when we we do see these lower sugar prices, competing crops will actually start to stack up better. And as Doug was mentioning, you know, you I suppose you hear this oil, you know, in you know the ethanol in Brazil is gonna be probably the biggest factor, isn't it? Then you know if we see you know ethanol um prices translate to the to the cane prices, then that'll definitely see a bit of a switch there too. So that's probably gonna be one of the things we'll have to keep a bit of an eye on is and the beet producers will always react.

SPEAKER_01 11:02

I mean, they they tend to make annual planting decisions, whereas the cane producers on the return cycle tend to tend to be a bit longer in terms of the horizon, you know, because of uh the return cycle either three or five years, depending which part of the world you're in. So so we will see some production response. You know, it's a little bit concerning, particularly in Europe. You know, there's a lot of reports about consumption declining at the same time. Now, you know, that's been a trend that's been pretty well publicized for years, where the developed world we see consumption generally declining on a per capita basis, whereas in the developing world we've seen consumption increasing, and the net result is a globe, a small global consumption increase. But Europe in particular is talking about some fairly drastic consumption drops this year. And, you know, again, you know, what does that mean? You know, is that going to translate to, you know, the rest of the developed world? It's a bit hard to say, but it's a definite trend that we need to keep watching because, you know, uh the consumption declines, which are which are usually the most stable part of your forecasting, you know, when you're looking at the supply-demand. You know, any any significant supply um uh uh sorry consumption decreases are really gonna make that difficult to see what what improves the the the balance sheet as we move forward.

Aussie Dollar Moves Sugar Returns

SPEAKER_00 12:22

So I suppose, Doug, one of the um uh real drivers that's gonna be impacting sugar prices well is not just the sugar price but also the Australian dollar. And we've seen a huge change. I think you know, back the last time we did our uh last podcast was like towards the end of last year. I think we've gone from 64 cents to now being over 70 cents. So that six cents you know movement is you know, that's actually costing us about 40 for 45 Aussie dollars per ton on our sugar price, unfortunately. So with that stronger Aussie dollar. Um, but you know, this current geopolitical uncertainty, higher oil price environment, you know, the the fact that US dollars sometimes sees is seen to be a safe haven. We've got a couple of conflicting things out there again with interest rates. So, yeah, what's what's your thoughts on the Aussie outlook?

Forward Pricing And Cost Pressures

SPEAKER_01 13:08

You know, yeah, on the face of it, I think the last time we sat here, Dougal, the the the Reserve Bank were in a uh uh you know a cycle where interest rates were decreasing, and generally that's uh you know uh adds a bit of weight, uh bit of pressure, sorry, to the Aussie dollar. And subsequently, I think we got some um uh surprisingly high inflation numbers and cost of living pressures again. And and here we are today um with interest rate cuts off the table. The RBA have already raised rates once this year, and the Aussie, as you said, has you know moved pretty quickly from 64, 65 up to, you know, I think at one point it was 71, but you know, back to sort of 70 cents now. Um so that's you know, that's that interest rate uh environment is you know is usually a good indicator of which direction the Aussie's going. On the flip side, of course, you know, uh, like you mentioned, the geopolitical turmoil is usually a signal that you know the world buys US dollars um and would be a negative for Aussie. So we really need to weigh that up. We might see some short-term pressure on on the Aussie dollar as uh the current tensions in the Middle East continue to to to escalate. Um but you know, generally it's hard to make a case that inflation pressures with current energy price rises are going anywhere, uh going away anytime soon. So, you know, on the face of it, you've got to think that interest rates are much more likely to increase from here rather than decrease. And in that environment, you've got to think that the Aussie dollar is gonna be um, you know, edging higher as opposed to lower. So, you know, again, not great news for Aussie per ton sugar prices, but um, you know, we weigh that up against the potential benefit of uh you know Brazilian mix changes, and perhaps we can see a net benefit, but you know, there's not a lot of um things to celebrate at the moment with regards to price outlook. So, Dougle, what um what are we thinking is going to be the current impact of this energy price explosion on on you know industry-wide costs and cost of production? I know you know current Aussie per ton prices are generally below the average cost of production, but what's your feeling on on the direction of that average? And you know, is there is there anything we can look at to help those costs for the industry?

Freight Premiums And Shared Pool Outlook

SPEAKER_00 15:31

Yeah, I think it's a it's a it's a good good thing, Doug and yeah, we've got this amazing tool to be able to do the forward pricing, as we know. And I think if you look out the three years at the moment, you know, even though the the current price is about 420 in the spot market, it does go up to 450 in the 26 season, 480 in the 27, and up to 500 in the 28 season. So we're already seeing you know the current prices are bearing the the sort of weight of that surplus, um, and the forward prices are you know quite a bit higher than that. So getting back towards you know what you know, cost of production levels. So I think that's that's really good to for growers to be thinking about is that you know that yeah, I think low prices equals you know, probably more probability we'll see higher prices at some point in the future as opposed to you know um much more risk on the downside. Um so that's one positive thing, I suppose. And if you look at those five-year averages, which we talk about, I think the five-year average or even the 10 to 15-year average is about 500 bucks a ton. So yeah, we're we're below the long-term average at the moment. So I suppose that's another thing that you know we are seeing the the market returning back to those you know um historical long-term averages. But I suppose the the short-term risk, as you as you mentioned, is higher oil prices will actually flow down into the cost inputs area for for the farming businesses, unfortunately. And so um, while our cost of production might be so 500 bucks a ton at the moment, if we saw fertilizer prices take off or um higher fuel prices impacting harvesting costs and other inputs as well, then obviously that means our cost of production is gonna be probably moving higher too, unfortunately. So it's certainly one of the things I'm sure growers will be will be worried about. Um but yeah, I think through the business essentials courses we've seen that yeah, productivity is gonna be the the main driver for keeping your cost down. So certainly at these times, you know, the lower the lower your cost of production, obviously the the the better chances you're gonna have to be able to get prices which will be above your cost of production, hopefully at some point. Yeah, so Doug, the other the other uh part of obviously sugar prices is the shared pool or the you know the the physical costs you know above the futures pricing or the the pool prices that growers are getting. I think we're probably hit the the floor level there at the moment, I think, and we really in a way, hopefully, with the the the differential between Western Hemisphere freight into the Far East. Um so I know that's one of the things that with a lower Thai crop, um, these two things might actually help us to see some higher shared pool results, maybe um, is one one potential positive we got out there as well.

SPEAKER_01 18:02

Yes, that uh you you're right. It could lead to some higher premiums for raw sugar in the in in the Asian region, generally in the environment where freight rates are rising, and we're expecting freight rates to rise now because energy prices have exploded. So at least in the short term, we're going to see higher freight cost. And in that environment, you would expect to see freight differentials and physical premiums in our part of the world increasing. That's the good news for the the shared pill. It won't impact what's already been shipped and sold. But you know, the other uh other cost that's probably has increased, um, which is also reflected in the share pill, this is interest rate and borrowing costs. So the industry will be paying more for borrowing generally um following that interest rate rise this year. But you know, we're hoping to see some respite from those physical premiums, which have been, you know, declining now for the last two seasons, particularly as the tire crop has, you know, bounced back to more long-term average levels following a couple of low uh production years. So um, you know, there is some good news there, but yeah, it it may well be reflected in future seasons as opposed to the current, just depending on you know what's been shipped and what's been sold already.

SPEAKER_00 19:15

So, Doug, it sounds like most of the bad news, hopefully, is already out there. Obviously, we know things can still change, but yeah, here we are at 420 bucks a ton in the spot, so that's not great prices, and certainly below the cost of production for pretty much every efficient global producer out there. So I think that itself tells us that we probably do think that prices will return back to, you know, cost of production levels at the very least, don't we, at some point soon?

SPEAKER_01 19:39

I think, you know, Dougle, what we you know is is what we saw a couple of years ago as well as well is that, you know, the best medicine for low prices is indeed low prices. It's going to, you know, in a long-term sense, it will see production decline, it will see prices bounce back. We we do know that the agricultural cycle is inevitable. So, you know, low prices will at some point be followed by high prices. But, you know, what what we unfortunately can't tell you is when that will be. So, you know, we we are hoping that you know there's better prices somewhere in the future, but you know, that's that's that's gonna require some patience, unfortunately, because it's not gonna happen, you know, um today.

Business Essentials Sessions And Closing

SPEAKER_00 20:19

So I suppose Doug will be joining um the Cane Growers team for the business essentials courses coming up. So I suppose if growers have got any questions on how you know the market uh and some of these cost inputs are gonna impact their cost of production and what are some of the um the possible actions they could be taking. That's I suppose we'll something which we'll be covering at these upcoming sessions.

SPEAKER_01 20:38

Yeah, it'd be great to see as many growers there as possible to try and make the sessions uh you know as relevant as possible. So I'm looking forward to that, and I think we're on the road as soon as uh a couple of weeks.

SPEAKER_00 20:49

Well, we'll look forward to hopefully seeing some of you out there and um look forward to catching up soon. Thanks everyone. See ya. Please note that Cane Grows does not have an Australian Financial Services license, so all the information contained in this presentation is general information only.