Cyclone Larry Lashes Northeastern Queensland

Maximum-category five Cyclone Larry, packing winds of up to 180 mph, ripped through northern Queensland about 7:00 am on Monday, March 20.  Hardest hit was the sugar-growing town of Innisfail, a farming city of 8,500 people 60 miles south of the tourist city of Cairns in northeastern Queensland state.  In a few destructive hours, Larry reportedly damaged thousands of homes and buildings in a wide arc between Cairns and Tully, snapped power poles, stripped once-lush rainforest bare, ripped roofs off houses, uprooted trees and flattened the crops of hundreds of banana growers and cane farmers.  The region is likely to take months to recover, with the damage reportedly running into the hundreds of millions of dollars.

Northern Queensland produces sugar and tropical horticultural crops such as bananas.  Damage included the destruction of crop and farm machinery sheds. The region is the center of Australia's banana industry and accounts for 25 percent of Australia's sugar cane production. Press reports indicate that more than 200,000 tons of bananas, valued at $USD 215 million ($AUD 300 million), have been destroyed.  The chief executive officer of the Australian Banana Growers' Council said that around 90 percent of banana production was believed to have been wiped out in the Tully area near Innisfail, the center of Australian banana production.  Though damage was sustained in banana and sugar production areas, the major summer crops of sorghum and cotton were unaffected as Cyclone Larry passed three hundred miles to the north.

Cyclone Larry spread across a 60 mile front as it pummeled the coast Monday morning. By evening it had deteriorated to a category-one storm, although the weather bureau was still issuing flood warnings to communities in its path. Its devastating track began when winds began pounding Innisfail at 3am, with barometric pressure dropping to 920hPa. The eye of the cyclone calmed conditions for about 40 minutes from 6:50am before the winds returned and annihilated property and trees that survived the first onslaught. Larry was downgraded to a category-four cyclone after crossing the coast, but continued its destructive path west of Innisfail into the Atherton Tableland.Authorities have warned people to be on the lookout for crocodiles and venomous snakes on the move after the storm. Weather experts believe Cyclone Larry and the looming Cyclone Wati will probably be the last severe storms of the season. Both were born out of the same monsoon trough in the Coral Sea

The USDA Estimates 2005/06 percent sugar production, prior to the cyclone, at 5.2 million tons, down 0.2 million from 2004/05. Preliminary estimates by commodity analysts in Australia indicate that damage from the cyclone could reduce 2005/06 output by 3 to 12 percent. Australia is the third-largest exporter of raw sugar in the world. Some limited recovery of the sugarcane crop is possible as the crop is still three months from harvest. The sugar growing areas affected by the cyclone historically account for less than 1.0 million tons of refined sugar, although industry sources suggest that for the 2005/06 season the region was expected to produce just less than 750,000 tons.  USDA's agricultural office in Australia anticipates total production losses of 150,000 to 250,000 tons, although this figure may change as new information becomes available.  The northern region contains seven sugar mills and two ports.  According to industry sources, Babinda and Mulgrave sugar mills, located near Gordonvale, have suffered significant damage.  There have been no reports of damage to ports or sugar loading facilities.  The Burdekin region, which produces around 40 percent of Australian sugar, is located well south of the cyclone path and did not suffer damage from the cyclone. Valuable rainfall was received in some areas of this region. 

Australian Sugar Situation
Commercial Cane Sugar content prior to the storm was forecast at 13.82 percent, which is generally in line with the long-term trend.  Low sugar prices have placed downward pressure on the area devoted to sugarcane.  The 2005/06 area planted to sugarcane is estimated at 410,000 hectares, or 10,000 hectares below the previous year.  In 1999/2000, area peaked at 428,000 hectares and is likely to remain a record for the foreseeable future. 

It is extremely difficult to determine strength and durability of the current run-up of the world raw sugar price.  It is even more problematic to foresee if it will forestall or turn around what appears to be the beginning of a longer-term decline in Australian sugar production area. 

World sugar prices are notoriously volatile and predicting the extent and length of this run-up is dependent upon myriad factors whose outcomes are unknown. Historical spot prices (see graph) suggests that the current price spike will be neither high nor long.  

A succession of poor production conditions, including disease outbreaks (2000/01), drought (2003/04 and 2004/05) and inconsistent returns, have placed considerable financial pressure on producers.  Sugarcane producers are expected to continue to exit the industry or move to other agricultural enterprises.

Australia exports the largest percentage of domestic production of all major world exporters and producers.  In addition, it is one of the few countries whose domestic sugar prices are directly derived from world prices.  Consequently, there is little support in the event of weak world price and an appreciating currency.  The 500,000-ton reduction in estimated 2005/06 output will directly reduce exports by the same amount – 12 percent.  However, the world spot price is up 80 percent from a year ago and 25 percent from December.

Currently, the world raw sugar price is the highest since the spring of 1981 and the exchange rate is A$1.38 to $US1.00.

Prior to 2001, domestic sugar was sold at “export parity.”  This means that domestic consumers were paying a freight rate component which increases the price of sugar.  There is a contractual split of the proceeds between the millers and farmers.  Since September 2001, however, Queensland Sugar Limited has operated a production pricing mechanism known as the “Call Pool”. The “Call Pool” provides an opportunity for both the millers and farmers to take their own futures and currency risk with their sugar equivalent.  Queensland Sugar Limited markets all Queensland sugar – about 95 percent of all Australia sugar – on both the domestic and world markets on behalf of the industry.

Current USDA area and production estimates for grains and other agricultural commodities are available on PECAD's Agricultural Production page or at PSD Online.

For more information on trade contact Bob Knapp | robert.knapp@fas.usda.gov | Horticultural and Tropical Products Division, at (202) 720-4620.