CANEGROWERS Around the Paddock
CANEGROWERS advocates on behalf of sugarcane growers in Australia. This podcast series examines some key issues and challenges and celebrates the successes.
CANEGROWERS Around the Paddock
Talking Trade - Exploring QSL's Future: Innovation and Industry Insights with Mark Hampson
Mark Hampson, CEO of Queensland Sugar Limited (QSL), brings a wealth of insight to this candid conversation about the state of Australia's sugar industry and the unique position Queensland growers hold in the global market.
With sugar prices hovering around $530 per tonne and approaching cost of production levels, Hampson reveals why Australian cane farmers should recognize their enviable position compared to global competitors. "The Australian grower is in a unique situation where they're one of the few growers in the world that can price risk management out four and five seasons," he explains, highlighting capabilities that sugar producers in Thailand and Brazil can only dream about.
The podcast unveils QSL's innovative FlexPay system, set to revolutionize how growers manage cash flow. This customizable payment system will allow farmers to dial up or dial down their advances weekly based on individual business needs—eliminating the one-size-fits-all financing charges that have been the industry standard. This shift to user-pays financing represents a significant evolution in how growers can optimize their financial management.
Perhaps most revealing is the dramatic shift in grower behavior this season. While typically 70% of the crop would be priced by this point in September, Hampson notes only 35-40% has been priced so far. "It's really hard to forward price where they know they're probably not making any money or they're locking in at around a cost of production level," he explains, highlighting the strategic patience growers are exercising in today's challenging market.
Despite current market pressures, Hampson maintains a constructive long-term outlook. With global prices at levels where "no investment case in sugar globally makes any sense," he predicts eventual upward movement will be necessary to stimulate the production needed to meet growing global demand. For Queensland growers, the path forward lies in optimizing their risk management strategies while leveraging the sophisticated tools and services that QSL has developed over its 101-year history.
Discover how your sugar farming operation can navigate today's market challenges while positioning for tomorrow's opportunities by exploring QSL's innovative approaches to pricing, payment systems, and market access.
Hello and welcome to the Cane Growers Marketing Information Service update for September 2025. This is Dougal Lodge, here to give us a quick update on the sugar market and to talk with Mark Hampson from QSL about QSL, the future outlook for QSL marketing, and to also talk about some of the latest and greatest innovations and offerings for growers in the next season or so. Please note that Cane Growers does not have an Australian Financial Services licence, so all the information contained in this presentation is general information only. Unfortunately, the sugar prices have dropped over the last month. We're seeing prices down about $20 a tonne, about $530 per tonne in the 25 season, moving up to about $5.50 in 26 and about $5.60 in 27 and beyond. So prices are moving down, unfortunately, over the last month.
Speaker 1:As we talked about in the past, cane Growers is a very strong advocate for grower choice and we have a really strong interest in making sure we have a very vibrant competitive market for marketing services for Queensland growers. So it's great to have Mark Hampson here to talk about QSL. Qsl is active in every single district in Queensland. We can talk a bit about the history of QSL as well, because QSL has been around for a very long time and providing some great services for the industry. So welcome Mark. It might be good just to give a quick introduction to yourself and a bit of your background and a bit of interesting about the sugar industry as well.
Speaker 2:Thank you, dougal, and a pleasure to be here. A bit about me yeah, mark Hampson. I've been with QSL eight years now and the last year and a bit as the CEO. The first seven years I spent as the head of marketing and trading with QSL. Prior to that I spent the best part of 10 years working for a couple of Australian banks in ag and commodity sectors. I did a lot of M&A work in that space, in the sugar industry and others and started my career actually as a molasses trader with Tate Lyle and then moved into a cotton trading marketing role. So long time in ags but yeah, last 12 months as the CEO of QSL.
Speaker 1:And Mark, you also have your own farm as well.
Speaker 2:I do. I have a small family cattle property up in the Mary Valley about 45, 50 minutes west of Noosa, so Queen Street farming as they say.
Speaker 1:And it's interesting someone with your background cotton molasses, working in the M&A sector. How do you see the Queensland sugar market for growers?
Speaker 2:Oh look, it's not without its opportunity. I would say there's plenty of opportunity and as I took on the role as CEO, I was really focused on the opportunities that lay ahead of us. Sure, there's some challenges and every industry is unique and has unique challenges, but I'm fairly positive, particularly with the outlook for sugar, the supply and demand. The longer term outlook remains quite constructive and, you know, given where the industry's at, if we can tackle some of the challenges, I think it sets up well for the next generation.
Speaker 1:I know we sort of look at the Queensland sugar industry these days and I think growers are very fortunate. We've got, you know, big organisations like Wilmar, we've got Nord Zucker, we've got Mipol, we've got Kofco all in the marketing space as well, all big, big sugar marketers. But actually QSL has been around a long time too, and so I think when we look at the grubber services that are available these days, I think it's good to remind ourselves that QSL has been around for a very long time and leading a lot of these things globally actually.
Speaker 2:Yeah, that's right, dougal, I think. Look, I quite like the saying. We're standing on the shoulders of giants, really. We've turned 101 in August, so you know, obviously we've spent a large proportion of that time as the single desk exporter and with the changes that have happened over the past decade, we've now essentially evolved ourselves from a wholesale exporter and terminal operator into now a very sort of bespoke marketing offering for a lot of growers. I think at last count we have some 2,500 growers using our services. So we're really focused on what the next 100 years looks like and proud of our history, but looking forward to the future as well.
Speaker 1:If we look back at that history, you know QSL has been around for a long time and helped develop some of these tools that I think are used in risk management globally.
Speaker 2:Yeah, I think that's spot on, Dougal, I think. Look, QSL was a founding member, an original member, of the ICE11 Futures Exchange and we were one of the first, I guess, domestic companies to offer forward pricing services to growers. This was pre the, you know so, the marketing choice days, bundling up those futures into swap products for growers to access. And the Australian grower is in quite a unique situation where they're one of the few growers in the world that can, you know, price risk management out sort of four and five seasons. So, yeah, we're quite proud of having brought that to the Australian market.
Speaker 1:And yeah, Mark, you're the chairman of the Global Sugar Alliance, working with the Brazilian and Thailand industries. How do they see Australia, do you think, when you're chatting to those industries?
Speaker 2:I think they're very fond of what we have here, particularly from two elements not only the sophistication but the the performance of our growing sector is quite strong relative to, you know, particularly thailand. Um, they're also, you know, quite envious of how we can control our supply chain through the, the bulk sugar terminal structure and and the advantage that gives us, um and the ability to price risk managers are set out four and five years is something that they don't necessarily have access to in those markets. So, you know, I'd say they're very envious of what we have here and we should remember that we do have a habit of, you know, looking at the negative sometimes. But, you know, from a global standpoint, australia is still, whilst it might not be the biggest exporter, it was, you know, at one point there we were the largest exporter in was, you know, at one point there we were the largest exporter in the world. But, you know, certainly, from a level of sophistication and performance, we're still quite the envy of the world.
Speaker 1:And so, thinking about the terminals, yeah, they're the I suppose, the crown jewel, I think I've heard it being talked about in the industry Obviously a few changes going on there at the moment, and I know, mark, you look after the operations area as well as QSL marketing. Do you just want to give us a quick update on where things are up to on the ops side?
Speaker 2:Yeah, look, I mean QSL. We are the operator for the industry. We have been for a long time now. I think 1999 was the time that QSL established itself as the operator. But unfortunately and sadly that contract will come to an end next June, with STL's insourcing plans to take effect at that point in time. Look, we are concerned, obviously, with what that means for the industry. As you've said, it is the jewel of our crown our ability to receive sugar, store sugar, load ships on time, move it to market efficiently. This industry built and paid for those assets. They were built there to provide those services. And we're concerned not only with the risks to transition. There's a lot of work that needs to be done and we're quite concerned about what that may look like. But we're also thinking longer term about where does that leave us as a sugar industry and making sure that we can maintain that distinct advantage that we have over other markets in the world.
Speaker 1:And so, looking at it from a QSL marketing perspective, I know there's a Chinese wall between the two parts of your business, so the ops team is very separate from the marketing team. I know because I was with you when we had to make those changes several years ago. Make those changes several years ago, but from a QSL marketing perspective. I think I've been hearing some growers asking the question well, what does this mean for QSL marketing, and is QSL marketing going to be viable if this insourcing plan happens?
Speaker 2:Yeah, it's not just a Chinese wall, it's a physical concrete wall. We've actually had to move our operations team to a different floor in the building, but look. That said, the two businesses are run independently of each other. I have no concerns about the long-term viability of QSL marketing. In fact, I think we're going to continue to innovate. We'll be as agile and nimble as we've ever been, maybe even more so. So the future for marketing looks good. Obviously, for the operations business, we'll have to get our heads around what that means for staff and manage the business through that. But yeah, I think the marketing business has been solely focused on improving returns, improving service, improving product delivery for growers, and that'll be the case going forward. So I think any concerns about QSL marketing being viable going forward is probably a little misplaced.
Speaker 1:And so, from a costs perspective, some growers would be concerned. Maybe your costs might increase. Is there any concerns about that sort of stuff?
Speaker 2:No, in actual fact, I think there's probably more opportunity for our costs to come off a little bit. I mean to put it in context, dougal we've got some very strict protocols, the subject audits and some very detailed contract mechanics that make sure that we have to run operations independently from marketing in a cost sense, and we've been doing that for nine years now and we've never had an issue in terms of cost allocation between the two businesses. In actual fact, I think we've probably been too conservative about some of the operational costs that we've allocated, and marketing's probably borne the slight brunt of that. So, from a cost perspective, I think, if anything, we're going to be slightly more competitive. That said, costs do change every year, with different things that go on, but no, I think we'll be just as competitive, if not more competitive.
Speaker 1:And if you look at the market, you know and you guys Link QSL still is the largest GEI sugar marketer, as far as we understand, and still the biggest user of the terminal assets too. So you're the biggest customer of STL, I suppose. In that sense, yeah, correct.
Speaker 2:I mean we're the only marketer that operates across all six bulk sugar terminals. We are still Australia's largest exporter and the largest marketer of GEI sugar, for those reasons that have a choice of GEI. Obviously, the crop is a little smaller and has been on the decline for the last little while, which has its challenges, but we still hope and plan to be that largest exporter, largest marketer, for as long as we possibly can.
Speaker 1:So, thinking about the sugar marketing space, mark, you mentioned innovation. Innovation is a big focus for you. It's interesting if you look back, there's actually been a tremendous amount of innovation. Actually that's happened over the last five to 10 years in the grower pricing space. So are there any standouts for you that you guys have contributed to the industry?
Speaker 2:Yeah, I think it's really hard to define what a sugar marketer does and is, but certainly, from our perspective, we like, like to innovate, we like to bring products and services to the market. So I think of things like you know, growers being able to price 100% of their own price risk the harvest pool opt out. You know the grower floor pricing. You know some of the structures of our pools all being innovations, you know, born of marketing choice, and so for that regard, we're actually really pro-choice because we think it does bring the best out in terms of a competitive marketing spirit, in terms of looking forward.
Speaker 2:Obviously, the big thing that we've been talking to industry about is the QSL FlexPay. So if I would say that a lot of our pricing or our marketing innovation has been in the pricing space, qsl FlexPay is the real big step forward in the payment space. So growers that are on the QSL Direct platform having the ability to dial up and dial down their own advanced program that's unique to them, so that they can manage their own business, their own cash flows going forward. So we'll be bringing that to market for next season.
Speaker 1:That sounds great. So that means, growers can actually either bring forward their payments or postpone their payments. Is that right?
Speaker 2:Yeah, correct In a nutshell. I mean there'll be some rules around it, obviously, around how many tonnes are delivered, how many tonnes are priced, these sorts of things. But in a nutshell, a grower can take more money or less money, depending on their own cashflow needs. They can do it weekly, as opposed to the monthly advances that we're becoming used to. They can actually take payments each week, which might smooth out their cashflow, and what the net result will that be is each grower will play their own unique financing charge. So for those that don't want to borrow money or don't want to take advances, they don't pay the financing charge. Those that take a little bit more are going to pay their own individual financing charge. So a real user pays bespoke, offering down to that individual grower's needs.
Speaker 1:It's interesting, isn't it? When you look at where things are today, growers can actually have totally different results based on their own individual choices across now 100% of their exposure, and they can also choose the payments that they would like to make as well.
Speaker 2:Yeah, and I think it's one of my big bugbears that the industry has a long legacy of focusing on pool returns and really a pool return is somewhat of a synthetic scorecard. It's a bunch of futures and a bunch of tonnes. It doesn't really mean anything to those individual growers. As you said, there's a lot of growers there that you know their own revenue and costs and services are very unique and bespoke to them. So we'd like to make sure that we're really focusing on talking to the growers about what's important to them, how they're utilising our services. Are they getting the results they want out of those services, rather than looking up at a pool that maybe not many growers or not many tonnes are actually in.
Speaker 1:So do you still think growers are comparing their results to each other, or how do you think that they do compare their performance these days in their own pricing or their own decisions?
Speaker 2:Look, I think naturally growers and we all do it, it's human right you like to compare how you've gone against your mates down the road, but I think if I'm in the Queen's Hotel and you know I'm sort of taking as gospel all the good pricing results that I hear bandied around there, then you know we've all hit the top of the market. But the reality is it's it's much different to that. And look, from my perspective, a grower should always focus on their, their pricing results as a risk management tool relative to their cost of production, relative to their cash flow needs, relative to their own business. Beyond that, you know, it's nice to have a bit of a brag with your mates about what you might have done there, but you know, first and foremost it's about running a business, making sure you're profitable, making sure you're putting regular cash flow in the tin so you can expand and grow and perform in your business.
Speaker 1:And are you seeing growers are migrating more to that risk management approach. You know that seems to be a natural progression. Are we seeing it come through?
Speaker 2:I think, yes, I think growers are starting to really or getting much better at understanding their cost of production, their pricing needs. You know the performance from the tonnage they produce. But certainly this year we have seen a reversion back to maybe five or six years ago where there's a lot more sugar being managed by QSL and I understand it might be the case for some of the other marketers in our pools and a lot less grower forward pricing than maybe the past five or six years. So there's some natural reasons for that. Some of those reasons if you look back at the last three or four years you've had high pricing environment and so really prices that entice doing a little bit more forward pricing, well above cost of production levels. But as we look here today, we've not only got prices back at $530, $540, $550 a ton, really hard for growers to forward price where they know they're probably not making any money or they're locking in at around a cost of production level.
Speaker 2:We've also got seasonal you know weather impacts. You know not sure of the cane quality, not sure of the sugar quality and we have had some um, you know performance issues at some of the mills. You know not knowing where we're going to get the crop off. You know how much we're going to leave behind. So I think those three factors have sort of played into a little bit of you know. I'll just leave a little bit more sugar unpriced this year than perhaps previous years. I think as I sit here today it's sort of the 8th of September. We're probably just about halfway through the season. I think we're probably only about 35% to 40% priced for this year's crop, so there's still a lot of pricing to be done. Traditionally we'd be almost 70% priced by now.
Speaker 2:Yeah, wow, so that's actually half what they would typically be in terms of coverage for the industry Correct and I think, as I said, I think the primary factor there is $530 a tonne. $540 a tonne, not a lot of upside to lock in your pricing at or below cost of production is there. So roll the dice a little bit and from our view, there might be some smaller windows to price it a little better than today's levels over the next six months.
Speaker 1:Fingers crossed, fingers crossed exactly so Cane Growers has the cost of production tool. I think we've chatted about this one in the past and I know we've had lots of the QSL team members come along to our Business Essentials workshops. How useful is a tool like that, do you think, when growers are trying to work out what risk management strategy they should be trying to think about?
Speaker 2:what risk management strategy they should be trying to think about. Look, I think you cannot develop a good risk management or pricing strategy over your sugar without knowing and having a good handle on what it costs you to produce. I think, very simply, it starts with knowing your costs, making some estimates around your cost of production and your yields and then having a think about okay, when do I start to enter the market at levels that make sense for me? But without it, I think you're flying blind a little bit. Yes, you can only derive from the market the opportunities that it gives you, but you want to know really whether that's going to be good for your business or if you are locking in at or below cost of production. You really want to know that too. So I think those tools are great.
Speaker 1:Yeah, I know, from the cane growers' side, we've been doing our pricing workshops now for several years. I think that's one of the things we talk about is how to use the tools right, how to place your orders so physically, how to do those activities, because you know marketers do this sort of stuff all the time, but growers may not have had as much experience in placing orders. Are you seeing, you know, growers learning more about how to do this? Um, you know doing scale-ups and those sorts of things?
Speaker 2:yeah, for sure I mean, look, you know, through the peaks and troughs we've definitely seen an uptick in numbers of orders being placed per month. I think at the current level we're averaging about 300 orders per month. I think our peak you, I think our biggest month was over 800. But generally growers are getting more savvy on how not only how to place an order but how to adjust them when things change. Either their market view or their deliveries, or in fact their cost of production changes and they go in and adjust that. So definitely getting more savvy on how they do that.
Speaker 1:That's great to hear. Yeah, because I think it's certainly one of those things that can make a big difference. Yeah, the old set and forget strategy isn't going to necessarily cut it these days when things are very volatile.
Speaker 2:Well, I think, from our perspective, our single biggest asset, you know, in some regards, is the QSL app and you know, like it or not, it lives in the, the back pocket of most farmers, you know. So that when they're driving around, you know, on the headland or in a harvester, and they, you know, they have that thought they can actually action it then. Or they've heard something that says you know what, I better make sure my scales are in or I've got my market. They can, they can actually do it right there and then Because often if it's not done there and then it's forgotten about and then we hear lots of horror stories where I forgot to place my order and the results haven't been great, or I thought I did it and I didn't, and you end up with a little bit of an uncontrolled outcome at that point. So that's one of the advantages, with that speed to market that the app brings.
Speaker 1:I think if you look across other industries, I don't think many of them would have an app like the QSL app to be able to place orders and you know that flexibility that it provides to growers. I mean, what's your plans for the future of the app?
Speaker 2:Look, I mean I think you're right.
Speaker 2:I mean it hasn't. Certainly something of the quality of the QSL app doesn't exist across other ag sectors and, as far as we can tell, it doesn't exist across the world in a sugar space. So we'd love nothing more for it to become either universally or across commodity app. That'd be a great outcome. But I think first and foremost, we want to make sure it's fit for the Australian sugar industry and it's delivering the services, as I said earlier, making sure the services are there in the ways that our growers want to use it. So what's next? I think, look, there's certainly plenty of ideas and most of the good ideas that we receive come from growers. I think it's a bit of a myth that QSL is sitting around trying to think how we can improve these things when it's mostly grower-led, to be frank, and certainly the way we price sugar, the ability to participate in a rising market now, the ability to adjust up and down your payments on your app, gives us hope that we'll continue to innovate in that space and bring good services through.
Speaker 1:So, Mark, obviously the growers can control pretty much up to 100% of their pricing exposure these days, but we know that the physical sugar marketing, you know, is still managed by you guys as a marketer and that includes obviously far-ish premiums. And you know all the other costs. You know storage and handling, et cetera. Maybe talk us through the last couple of years of shared pool results, which have been fairly extraordinary, and what's your outlook and what's what's your thoughts about how to, how to try to keep, you know, good levels there for growers?
Speaker 2:yeah, I think we, we last three years we've sort of entered rarefied air of having shared pool. Uh results you know well, north of 35 a ton. Um, you might remember, might remember from seven or eight years ago, if you had a share pool, sort of plus or minus a dollar, it was a reasonably good result. Whereas we've had these elevated levels and by and large that's been a function of the market being undersupplied physical sugar. So we've been in a deficit for quite some time, particularly in Asia, and therefore the markets had to attract sugar from outside of Asia, ie Brazil, into Asia and we've been able to capitalise on that and print some pretty good numbers, I think, certainly for the season that we're in now, our shared pool, our most recent number, was in and around $14 a tonne, obviously a lot lower than it has been, and I think that reflects two things One, an oversupply of physical sugar.
Speaker 2:Certainly we're moving into a bit more of a surplus market, so buyers can be a bit more patient and we've seen the re-emergence of Thailand as an exporter. So naturally being a little closer to Asia than we are has put some downward pressure on the physical prices we've seen and a little bit of logistical expansion in Brazil so you know, an extra terminal coming online there has meant that some of the longer term issues around ship lineups and loading rates and these sorts of things have dissipated in Brazil, which has put downward pressure on that physical premium.
Speaker 1:So the last couple of years where prices have been fairly extraordinary I mean Japan was a big driver of those high premiums we've seen in the Australian markets. That's largely due to some of the work that the Queensland industry has done to create that access to Japan.
Speaker 2:I think I think you're 100% right.
Speaker 2:So, to put it in context, the Japanese free trade agreement probably gives us something like a 20 to 25 US dollar, a ton, advantage over any other supplier in the world.
Speaker 2:But naturally, as you've got competition now, as I've said about an oversupplied market or a little bit of a surplus, we have seen some of the commercial pressures coming into that place, where natural competition for shipping slots mean that the sellers have started to discount those values a little bit to make sure they secure the slots. And look, I think you know, whilst disappointing to see some of those values erode, it is the cut and thrust of competition. So you know, competition is going to bring you some positives. It's certainly going to bring you some negatives, and this might be just one of those symptoms of marketers fighting hard to make sure they can get the slots they need. So, whilst we're still attracting a good premium for Japan over and above places like Indonesia and Korea, the extent of that premium is not like it was and certainly off a lot lower base. And so I suppose markets like Japan, like Korea, the extent of that premium is not like it was and certainly off a lot lower base.
Speaker 1:And so I suppose you know markets like Japan, like Korea, I mean, they've been key markets for QSL now what 50, 60 years, I suppose. So they're very long-term relationships.
Speaker 2:Yeah, correct. And I think, look, there's not too many markets in Australia that Australia is saying sure that we don't have some sort of beneficial trade arrangement, whether it be quality advantage, whether it be actually terms of trade or access quotas, these sorts of things. So they're incredibly important that we continue to look for those free trade arrangements, or as close to as we can get, because we rely heavily on those to attract value back to the grower here in Australia. So look, japan and Korea long term 50 plus 60 year market, but they are shrinking, right, so their population and consumption is both shrinking. So we're having to think about where the next market may arise, the places like Vietnam, uk. Can we get additional access to the US? Indonesia is obviously a big importer, albeit not importing a lot at the moment, which is disappointing, but structurally a big importer of our sugar. So again, this is part the cut and thrust of being a marketer having to understand your markets and think forward about you know positioning yourself as best you can to bring that value back to growers here.
Speaker 1:And just talking about the USA there for a moment. Obviously quite a lot of volatility over there. How have the tariffs impacted your marketing over in the US market?
Speaker 2:Well, I mean, which week is it right? The tariffs are in, they're out, they're illegal, they're not. But just to put it in context, I mean we've received a 10% tariff on our US quota shipments. We have paid some of those tariffs and there is still some talk about whether tariff will be refunded, but I wouldn't hold your breath on that, dougal. But certainly some of the other US quota holders have received larger tariffs than us.
Speaker 2:So whilst it's annoying to have to pay that 10%, I do think we're largely more competitive or at least no worse off than we were prior to the tariffs coming in and the US actually needing to import sugar. Right, they're a deficit market, they need to import sugar. So, unfortunately, I think it's bad news for the consumer over there and probably doesn't mean a great deal for Australian sugar exports. I think the interesting thing to keep your eye on is a lot of not a lot, but a little bit of world market sugar makes its way into the US and with the 50% tariff being placed on Brazil, that does make us a little bit more competitive now in terms of moving world market sugar into the US. So we'll have to watch that space and see if we can't get a boat over there.
Speaker 1:So, mark, we talked about the shared pool a little while ago and I know there's obviously the premiums, the extra revenue which has been extraordinary in recent times, but the cost side of the shared pools, also very important to keep an eye on. Obviously lower storage and handling costs this year, which is great to hear, but hopefully more potential savings to come. Do you think in the storage and handling space?
Speaker 2:I think it's a bit of an unknown. I think we've had a marginal reduction in storage and handling costs this year or projected for this year as a result of STL making a modest reduction to their cost to access the terminal. But we really don't know what the insourcing related costs will yield at this point. I don't think we're going to know until that's completed, and my own personal concern and certainly concern shared across QSL is some of those costs could be quite expensive. So we'll just have to watch this space and see how they go.
Speaker 2:I think the other cost bucket that QSL reports against really is our own marketing overheads. Obviously it's an ongoing job to make sure that we keep our costs to provide the services relatively competitive. We all know the sorts of wage and cost inflation pressures that we've been experiencing the last three or four years, and QSL is no different to that. So there's a constant challenge for us there. But what I'd like to hope is that we are completely transparent. We publish our cost per tonne. If growers are seeing value in that, great. If not, then the challenge is for us to try and demonstrate that our cost per tonne does represent value to them.
Speaker 2:Financing charges, interest charges we know, interest rate environment's been the last four or five years since COVID has sort of been on an upward trajectory, albeit we're now seeing a couple of rate cuts coming through. I think this will be. One of the major benefits of the flex pay is that up until this point every grower paid the same per tonne interest charge, irrespective whether they wanted the money, needed the money, used the money, Whereas going forward it'll be an individual grower to make that decision as to whether there's a cost benefit to taking money early or actually delaying payment and not having to pay that interest charge. So we're really sort of individualising interest charges.
Speaker 1:So, mark, I know QSL is very transparent. You guys publish all the information related to the different cost buckets in the shared pool. One of the questions I hear quite a bit from growers is around your shareholdings and STL and ACF Australian Cane Farms. Do they impact your finance costs at all related to grower marketing services?
Speaker 2:There's certainly a cost to borrowing that money, dougal, but at this point we've been able to fund that interest over both the dividends from STL and ACF, I think. Look just to break it down into the two separate investments. So STL I'm not sure if you're aware, but STL were reported last month as being the second highest paying dividend in Australia, right? So 8.12% yield on their shares and we can borrow money sort of south of 5%. So not only do we borrow money and buy those shares, the 3% difference that we get it's a pretty good investment. It's a good investment. And then I think I would also add that QSL, as a charity and a non-for-profit, gets a further 2% and a bit back from the ATL as a cash credit rather than a franking credit, which means that we can distribute that sort of 5% 6% yield back to growers through our loyalty bonus, which every grower that markets with us will receive.
Speaker 2:Look, we are frustrated, to be frank, that STL is paying out those sorts of dividends. So I've been quite public in saying that the QSL position is the STL dividends are too high, they're charging us too much to pay for those assets and there is no reason why they need to sit on those sorts of top five yielding stocks in Australia league ladders. So put that into some further context. We're charging about $32 per tonne of storage and handling to everyone. It's about $13 of that $13 per tonne of every tonne that goes to the BST that gets distributed out to an STL shareholder somewhere and that's far too high. So it's not costing anyone any money for us to own those shares.
Speaker 2:We do borrow some money to do that, but we would like to see the dividends come down to make each farmer a little more profitable in the industry. It's a similar situation with ACF, albeit the ACF dividends are essentially pretty well break-even with our borrowing costs. So we're not taking any money off anyone or out of the pools to do that. But we haven't been able to return any money into the pools as a result of that investment yet. What I would say is that the investment has grown substantially in the time, the four years that we've owned it. I think we bought in at about 75 cents per share. Today's valuation is probably $1.05 a share, based on just the appreciation in land values in the Burdekin. So it's been a reasonable investment but hasn't actually yielded any cash for us to distribute back to poor participants yet.
Speaker 1:And Mark, I think you know we're working on this project, headland, which is working with the districts looking at their strategic plans for the next few years. I mean, one of the things that comes up quite a lot is how to enable sort of transition, you know a succession planning across the farms. You know, has QSL obviously got access to capital? Is this something that you are looking at as a strategic? You know pillar?
Speaker 2:Yeah, I think it was certainly a big part of why we made the investment decision in ACF. We wanted to get in under the hood on that sort of institutional investment level, learn how those assets and businesses perform and use that essentially as some form of a cornerstone for attracting further investment. I think no surprising anyone that since we've invested we've had good sugar prices, we've had reasonable profitable yields and not a lot of debt. It's not an over leveraged industry, I would show. I would say that the sugar industry.
Speaker 2:So I think the need for equity capital over the next 10 years is going to be something we need to get our heads around as an industry. There's no no hiding the fact that we've got an aged grower base and and we're going to need to see the transition of assets either to the next generation or into the next kind of iteration of the farming model. And you know QSL would naturally see itself trying to help facilitate. You know customers and members make that transition. That said, I think you know over the last four years, with those higher prices, the demand that we've seen for equity participation has probably softened a little bit, just given where individual business balance sheets are, their ability to borrow these sorts of things, but we're hoping to play a role there and help transition the industry as it needs.
Speaker 1:Okay, great. So to summarise, it sounds like both the investments in STL and ACF are paying for themselves, essentially, so no cost to growers through the pools.
Speaker 2:We have not taken a single dollar from the pool to fund either of those investments at this stage and I don't see that changing going forward.
Speaker 1:Yeah. So, mark, I think we had you as a speaker at the Sugar Cubed conference earlier in the year and one of the things I took away from your presentation was you talked about the Brazil price being the world market price and so the cost of production. You know Brazil being the sort of floor where do you see? You know we obviously feel like we're getting close to that floor now, or do you think we've still got a little bit of a way that it could go lower?
Speaker 2:Look, I think, in terms of yeah, I think that's a right way to think about it, dougal in terms of, you know, demand continues. Demand for sugar continues to grow in line with population growth right continues. Demand for sugar continues to grow in line with population growth right, and at this point the world is essentially producing its biggest sugar crop each year, moving forward in terms of sugar tons production, and that growth, or demand growth, has to be met by somewhere. I think the unfortunate reality is, today it's been met by an expansion in sugar production from Brazil, not necessarily the expansion of hectares, but certainly we've seen the record sugar mix. They're now pushing 55% sugar mix in Brazil, which is something we've not seen before.
Speaker 2:So, look, if we are going to see an expansion in sugar production in Australia, I think it's born heavily of our ability to compete at a cost of production level.
Speaker 2:Now, today I don't think there's much difference, right, we're probably sort of anywhere from 15 to 17 cents a pound, depending on who you are at a 65 cent Aussie. But the challenges are there for us to continue to be more efficient, more innovative. Otherwise, I think you know that demand growth will be met by an expansion in Brazil vis-a-vis Australia. That said, prices at these levels 15 cents a pound I don't think there's anybody globally making any money and certainly there is no investment case in sugar globally that makes any sense, be it mill, refinery, port farm, anywhere in the world. That makes sense at $0.15. So we are not going to see an expansion in sugar investment at these levels and, frankly speaking, I think it's north of $0.25 a pound before you start to see those sorts of investment decisions really making any sense at all making any sense at all. So if we are going to see an expansion in sugar production globally to meet long-term demand projections, I think the price needs to play a big role and move significantly north from here.
Speaker 1:So fingers crossed, then, that things will return to some of the levels, maybe not as high as what we saw the last couple of years, but certainly moving back up again.
Speaker 2:I think that's right. I think at some point sugar prices need to sit well above cost of production and whilst Australia can maintain top two, top three cost of production status in the world, we'll have an ability to exploit that higher price environment. But I think certainly the next six to 12 months the sugar market does look a little oversupplied and we're going to have to ride out the storm a little bit. Ethanol parity in and around 14, 14 and a half cents means we're probably not thinking prices can go much lower than they are today. We've got the biggest net short position from the specs that we've seen in six years. I think you know last count about 190,000 lots net short. So I think as we ride through this Brazilian crop you know 55% sugar mix, maybe a little downside bias on the quality of cane, but as we get the back end of this crop you know there might be some respite and a little bit of an opportunity to price at better levels.
Speaker 1:So, mark, sounds like we're in for a little bit of a rocky road for the next six months. You know at least, and we're around these levels which are approaching cost of production or thereabouts. You know, at times like these I suppose it's good to be able to understand who can growers talk to. You know what information should they be looking at. We talked about the cane growers cost of production tool. Have you guys looked at, you know, financial advisory type services or how do you guys deal with these sorts of questions that the growers, I'm sure, are throwing at you?
Speaker 2:It's a good question and we've certainly looked at it. I think from our perspective, we're sort of more focused on providing the best access to intelligence, market information, products and services, because I don't think that we can necessarily add a huge advantage in that sort of financial services, financial advisory space. I think you know local accountants, local consultants, are probably a better place to understand local dynamics and local businesses. You know we're certainly a big fan of using your local. You know collectives or local. You know organisations like Cane Growers to lean on that, the ability to. You know, get a large local.
Speaker 2:You know organisations like Cane Growers to lean on that, the ability to. You know, get a large amount of information. And you know, package up a service for growers and really have the growers' needs front and centre is best served by organisations like Cane Growers. So you know, I think in today's complex business world, you know, a grower's business is far more complicated, uh and and sophisticated than it's ever been and they need to build a good team around them to to be successful. And I think it's much about making good decisions. When prices are down, you know, and and we're sort of at that cost of production, making really good decisions sets you up for making, you know, making returns later. Um, so you know, I think putting a good team around is the way to do it.
Speaker 1:And you guys got your obviously your team on the ground out there talking to growers too, so I suppose they're great people to chat to as well and can talk about who some of those other people locally might be there to help some of the growers, I suppose.
Speaker 2:Yeah, correct, we've got offices in each of the regions. We've got 10 dedicated grower services staff and their job is to really get to know our customers and know their needs and their businesses and I'm sure there is no doubting they'll form part of that team that helps the business perform. We pride ourselves on having that sort of high touch, high service model, really, really local service delivery, and I don't think that'll change going forward.
Speaker 1:Mark, it's been great to have you here today and you know 101 years of QSL and you know, hopefully another 101 plus, you know, still to come.
Speaker 2:I hope so, but we're focused on the next one at this stage anyway.
Speaker 1:Very good mate. Well, thanks for coming along.
Speaker 2:And let's see. Hopefully the sugar prices will pick up a little bit after the next little while. I think the long-term outlook remains fairly fairly good Excellent.
Speaker 1:Thanks Dougal, thanks mate. Please note that Cane Growers does not have an Australian financial services licence, so all the information contained in this presentation is general information only.