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Michael Byrnes
Tully, Australia, Nov 23: A successful hedging programme by Australia's Queensland Sugar Corp (QSC) on the Coffee, Sugar and Cocoa Exchange (CSCE) in New York had allowed the corporation to lock away some 1999 prices for good returns, John Bird, senior manager Financial risk, told journalists.
"We've had some of 1999 locked away from a little way back which is producing good returns," he said.
Bird told journalists and investment bankers here during an industry inspection tour in North Queensland that QSC, which exports about 4.5 million tonnes of raw sugar a year, represented a "fair bit" of the open interest position on the New York futures market.
Any limit on QSC's position on the CSCE was a "practical limitation against the market", represented by the market itself, Bird said.
QSC's own limitation on the ratio of how much of the crop was hedged was also flexible and determined by the corporation's board of directors, Bird said.
"If returns are very attractive... we have unfettered access to themarket. When prices are down we tend to lag our pricing activities," he said.
While most futures traders took positions in nearer contracts, QSC as a hedger was looking for the longer-term, over 12 months to two years, he said.
"(We take) a softly softly approach in our pricing activities," he said.
With present futures prices showing marginal returns for less efficient producers, "we're trying to delay our pricing activities," he said.
Bird's comments, which offered an insight into the way the big statutory authority covered itself on the New York exchange, came after a successful year by QSC despite the depressed world sugar market.
Recently-released figures showed that QSC was able to withstand a 40 per cent world price decline to a seven-year low of 7.2 US cents a lb in June 1998 in its latest year to June 30 to achieve a five per cent gain in sugar sales revenue to A$2 billion.
"Our active sugar price hedging programme softened the impact of lower sugar prices," QSC said in its annualreport.
"Our financial risk management programme enabled us to capture higher prices early in the year which will benefit pool price returns in 1998/99," QSC said in the report.
The one-third decline in sugar prices this year was expected to produce a decline in the Queensland number one pool return for Australian producers to about A$300 a tonne in 1999 from A$355 in 1998, Bird said.
Poor prices and Queensland's poor 1998 crop would help make 1999 a difficult year, he said.
Bird does not believe present depressed sugar prices of around eight cents a lb will fall to the lows of around 2.5 cents nor rise to the highs of 66 cents a lb of the past two decades.
He sees trading in a broad band between 6.5 cents and 16 cents a lb over the next five to 10 years.
"We've had a fair bit of success over the last couple of years in our hedging programme," he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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