SINCE the beginning of the year sugar futures have hit values not seen for more than three decades, with the March 2010 contract reaching US28.41 cents a pound on January 7, with the Aussie dollar worth 92.3US cents sugar worth $672 and cane more than A$50 a tonne.
However, when you consider futures prices 12 months ago were below US12c/lb it's a miracle the 2009 Seasonal Sugar Pool will pay A$500 tonne plus or minus $20.
It was a poor crop in India, due to a failed monsoon and the need for the country to import sugar, combined with low production in the USA, Mexico, Thailand, China and Brazil that created a sugar shortage with the size of the global deficit ranging from 8-13 million tonnes depending on who was crunching the figures and the global supply shortage is not expected to begin to be relieved until Brazil begins its 2010 crush in April.
However the big news last week was the giant Chinese food producer and retailer Bright Food's offer to hold talks with CSR to develop a proposal for its subsidiary Shanghai Sugar Cigarette & Wine (Group) Co Ltd to acquire the CSR sugar and renewable energy business for not more than A$1.5 billion in cash.
CSR announced last year it intended splitting its sugar and renewable energy assets from its building interests to form two independent companies by March this year with the new sugar based company to be called Sucrogen.
Its sugar assets include: CSR mills in the Herbert, Burdekin and Sarina districts which produce close to half Queensland's raw sugar; Sugar Australia, the major refiner in both Australia and New Zealand; CSR Ethanol the major ethanol producer in Australia; and cogeneration at Pioneer Mill in the Burdekin that supplies a significant amount of electricity to the local grid.
Having such a large Australian owned company go offshore is something the Foreign Investment Review Board will have to look at closely particularly as the major shareholder in Bright Food's is the Shanghai Municipal Government.
Although China has been increasing its investment in Australian companies in recent times not all its offers have passed the Review Board.
The A$2.6 billion bid by Sinochem for Nufarm was recently knocked back and there have been similar failures to buy into the mining sector.
Although investing in resource and commodity companies is beneficial because of the returns they produce, China also needs food and mineral security into the future.
That was of concern to Opposition finance spokesman Barnaby Joyce who told Fairfax Media the potential bid was a dangerous proposition for Australia.
"When a government has the ownership of an asset it's not driven by market fundamentals but by strategic long-term interests."
Canegrowers had a different slant - chief executive officer Ian Ballantyne said the industry was pleased the Chinese had recognised the importance of developing a relationship with suppliers by offering to open dialogue with them - if the offer progresses - which included the potential for some form of grower 'equity' in the new company. Although that's something all growers have had by buying CSR shares.
Bright Foods said the offer provided a "channel directly into the rapidly growing Chinese sugar and food markets which had significant growth potential due to China's swelling population and wealth."
That concerned Canegrowers, with Mr Ballantyne wondering about the future of marketing and operational transparency and financial underpinning for forward pricing that CSR growers currently enjoy with the sugar being sold by QSL.
Bright Food's vice president Ge Junjie said: "This proposed acquisition aligns with Bright Food's long-term strategy to build resource-related businesses and also food-related, dairy, wine and nutrition products."
Bright Food's also said it was prepared to discuss a similar transaction to CSR's proposal to acquire the 25 per cent stake in Sugar Australia held by Mackay Sugar Ltd (MSL) in exchange for 8.8pc of the CSR sugar division.
It was a deal CSR valued at $100 million at the time of the announcement which made their assessment of Sucrogen's value $1.13 billion, so Bright Food's offer is pretty much on the money as it's a nice round figure that's 1.3pc above that.
However with less than six weeks to the demerger there won't be enough time to finalise even the arrangement of talks before Sucrogen is floated.
It will then be up to the Sucrogen Board to decide with capital gains tax considerations on shares and any debt the company brings with it, whether $1.5b is enough to be beneficial to its shareholders.
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