Sugar Output in India Beating Demand for Fourth Year on Rain

(Bloomberg) – Sugar output in India, the world’s second-biggest producer, will probably exceed demand for a fourth year as the best monsoon since 2007 boosts cane yields.

Production may total 24.42 million metric tons in the year that began Oct. 1, according to a survey of 874 farmers across six states by Geneva-based SGS SA for Bloomberg News. That compares with forecasts for domestic consumption of 23.5 million tons and output of 25 million tons by the Indian Sugar Mills Association. The crop fell 4.7 percent to 25.1 million tons in the year ended Sept. 30 from a year earlier, it estimates.

A second straight decline in Indian production may shrink a global glut forecast by the International Sugar Organization. Futures traded in New York have plunged 51 percent from the 30-year high reached in February 2011 as farmers worldwide increased harvests and are heading for a third year of losses, the longest slump since 1992.

“The surplus in India is currently acting as a cap on world prices,” said Charlotte Kingsman, an analyst with Kingsman, a unit of McGrawHill Financial Inc.’s Platts. “If the crop is much smaller, this cap could move higher or disappear. If the crop comes to 22-23 million tons, in theory there is still enough sugar to feed the population especially with the high opening stocks.”

Sugar fell 9.5 percent this year to 17.65 cents a pound on ICE Futures U.S. yesterday. The Standard & Poor’s Agriculture Index of eight commodities tumbled 20 percent this year and the MSCI All-Country World Index of equities advanced 18 percent. The Bloomberg U.S. Treasury Bond Index lost 2.3 percent.

Inventories Surge

Inventories in India surged to a five-year high of 8.85 million tons at the start of this season, enough to meet demand for four months, according to the mills’ association. The reserve may expand to 10 million tons by the close of the season if the nation fails to export any sugar, it estimates.

Farmers may harvest 364.7 million tons of cane this season, 7.6 percent more than last year, according to the SGS survey conducted from Sept. 25 to Oct. 31 across Uttar Pradesh, Maharashtra, Gujarat, Karnataka, Tamil Nadu and Andhra Pradesh states. About 65.4 percent of cane may be crushed to make sugar, according to SGS, which used the average extraction rate of 10.24 percent between 2000-2001 and 2012-2013 reported by the cooperative producers. The rest will be used for livestock feed, seeding and jaggery, a local sweetener, said SGS.

Dominant Producer

“With production expected to be static in dominant producer Uttar Pradesh and a 4 percent decline in Maharashtra because of a reduced acreage after last year’s drought, greater focus is on the mid-ranking states,” said Mark Oulton, marketing director with SGS, from Wilkes-Barre, Pennsylvania. “Loss of production in Tamil Nadu was more than offset by large acreage increases in Karnataka and Gujarat.”

While farmers planted 4.2 percent more acres to the crop that is being harvested in 2013-2014, yields may increase 3.26 percent, the survey showed. Reporting of “bad” crop conditions, the highest in Uttar Pradesh, rose to 13.1 percent this year from 6.8 percent a year earlier, said SGS.

The major producing areas of Uttar Pradesh and Maharashtra, the top growers, received the highest monsoon rainfall since 1994, increasing disease and insect attacks this year, said SGS. About 25 percent of farmers in Uttar Pradesh reported that crop was affected by heavy rain and flooding and that may reduce yields, it said.

The cane harvest in Maharashtra, the biggest sugar-producing state, may decline 4 percent, with 46 percent of the crop reported to be in good condition, from 26 percent a year earlier, according to the survey.

Reporting of normal crop conditions jumped to 61 percent in Gujarat this year from 48 percent a year earlier, while “good” crop conditions increased to 42 percent in Karnataka from 27 percent, said SGS. “Due to good rainfall, sugar cane yield is expected to improve in Karnataka, Gujarat and Maharashtra over previous year,” it said.