Sydney, Nov 27 - Long-established buyers of Australian sugar, such as refiners in South Korea and Japan, face a potential shortfall because of a smaller-than-normal crop in the world's third largest exporter.
Industry officials expect the 2008 harvest to produce about 4.5 million tonnes of raw sugar, less than a normal crop of about 5 million tonnes, due to inclement weather and lower plantings as farmers switched to alternative crops.
This would leave 3.5 million tonnes for export, only slightly down on last year's 3.6 million tonnes but not enough to meet steadily growing demand in Asia.
"People are lining up to buy our sugar, there's not enough to go around all our traditional customers and obviously if we can secure a premium on those exports it is good for the industry," said Ron Mullins, the operations manager of Canegrowers, which represents about 4,000 Australian sugar farmers.
In recent years sugar consumption in Asia has been growing at about four percent per year, about double global growth, at the same time as Australian production has been falling due to weak prices, adverse weather and farmers switching to other crops.
"There may be some rationing which is not good as it allows other suppliers to get into our markets," said Mullins, adding that sharply lower shipping rates could see more distant suppliers, such as Brazil, enter Asian markets.
The benchmark Baltic Exchange index for dry bulk sea freight <.BADI> fell to a 22-year low on Wednesday, having lost more than nine-tenths of its value since a record high in July.
South Korean refiners are the largest buyers of Australian sugar, followed by Japanese refiners and Malaysia.
The 2008 sugar harvest is drawing to a close with more than 95 percent of the crop harvested.
Mullins said the harvest was one of the lowest in recent years with about 30 million tonnes of sugarcane harvested compared with about 35 million tonnes in a normal year.
Higher sugar content lessened the impact on actual raw sugar production.
Australia markets most of its exported sugar through Queensland Sugar Ltd.
Queensland Sugar chairman Keith de Lacy said market fundamentals remained sound despite prices being more than 20 percent below levels seen in August, immediately before the global credit crunch turned into the worst financial crisis since the Great Depression.
Longer-term, the sugar market may derive support from a supply deficit which may hit five million tonnes in the season ahead.
"There's a looming shortage of sugar so there's upward pressure on prices notwithstanding what's happening in financial markets," said de Lacy.
He said Australian sugar attracted a premium because the industry was able to supply a uniform product and had gained a reputation for reliability.
Canegrowers' Mullins said the prospect of rising prices and lower input costs, as fuel and fertiliser prices eased back from record levels, was likely to see a larger crop planted next year.
"The industry is more geared to a 35 million tonnes crop" said Mullins.