India’s sugar output in 2015-16 to stay near record levels

(Agrimoney) – Whatever happened to India’s sugar cycle?

The country’s development as the world’s second largest producer of the sweetener has taken a somewhat uneven path.

Periods of bumper production have been followed by spells of dramatic reductions, as strong output sent prices tumbling and prompted cane growers to switch to other crops – a trend exacerbated by mills’ inability at times of low sugar values to pay the cane prices guaranteed by the government.

Between 2003-04 and 2008-09, for instance, output swung 15.2m tonnes to 30.8m tonnes and back to 15.95m tonnes, according to US Department of Agriculture data, and for reasons of pricing rather than of weak monsoon rains.

Arrested cycle?

However, while Indian production looked to be ready to ride the downcycle again after recovering to a record 28.6m tonnes in 2011-12, the downturn has not happened.

Production has remained at elevated levels, and may this season end up at 29.5m tonnes, far higher than initially expected, according to the USDA’s New Delhi bureau.

The upbeat estimate for 2014-15 reflects ideas that the proportion of cane going to the backyard market for making gur sweeteners has been much less than forecast.

And for 2015-16, India will produce 29.0m tonnes of sugar (excluding gur), the bureau said, in its first forecast for next season, which starts in October.

Large cane area

Output at this level would leave production ahead of consumption for a sixth successive season – a feat India has not achieved since the 1970s, just as its sugar cycle was beginning in earnest.

The forecast reflects the relative appeal of growing cane at times of weak prices for other crops.

“Although sugar prices are depressed, farmers will continue to plant more sugar cane as it is a sturdy crop,” the bureau said, forecasting India’s cane area for next season at 5.06m hectares, up 106,000 hectares year on year on its estimates.

Furthermore, there are “assured government price supports, and returns are still competitive with paddy and cotton”.

Export subsidy again?

Still, one question is where the cane will go, given the squeeze on mill margins from guaranteed cane prices at a time of low world sugar values.

“Sugar mills continue to accumulate debt, particularly in Uttar Pradesh,” where some 40% of Indian cane is grown, the bureau said.

Cane processors will at least get some support from further government subsidies for exports, which will see shipments recover to 2.2m tonnes in 2015-16 (of which 1.2m tonnes will be raw sugar), from 900,000 tonnes this season.

“Indian sugar will not be competitive in international market, as high input costs and poor infrastructure make sugar production in India significantly more expensive than international competitors.

However, the government “may extend its export subsidy for raw sugar for a third consecutive year” to boost the competitiveness of India’s shipments.

Furthermore, the country will “likely consider other mechanisms to manage its large sugar surplus, which may include building compulsory buffer stocks, increasing its ethanol blending mandate, [and] allowing for greater flexibility for ethanol feedstocks”.

Record arrears

The comments follow a caution from ED&F Man over the extent of cane arrears, which have reached an estimated 170bn rupees ($2.7bn), thanks to the extent of output in 2014-15 and low sugar prices.

“With depressed [sugar] prices, mills are not able to generate funds to pay even the fair and remunerative price of 220 rupees per 100 kilogrammes to sugar cane farmers,” the London-based trading house said.

“This hasn’t deterred cane planting prospects for the 2015-16 season, however, as alternative crops do not fare any better,” ED&F Man added.