Sugar Output in India May Rise as Dams Counter Monsoon

July 11th, 2014

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Category: Sugar

(Bloomberg) – Sugar output in India, the biggest producer after Brazil, will expand for the first time in three years as record cane prices prompt farmers to increase planting.

Production will expand 3.7 percent to 25 million metric tons in the harvesting season starting Oct. 1, the first gain since 2011-2012, according to the median of 11 estimates from traders, producers and industry officials compiled by Bloomberg News. Planting will top last year’s 4.9 million hectares (12.1 million acres), said M.G. Joshi, managing director of the National Federation Cooperative Sugar Factories Ltd.

A bigger harvest will add to the highest domestic stockpiles in five years and ease a global deficit forecast by Czarnikow Group Ltd. and Kingsman S.A. Futures in New York gained 5.6 percent this year, rebounding from a 49 percent slump in the three years through 2013 as global production exceeded demand. World supply will lag behind demand by 500,000 tons in 2014-2015 as production stabilizes, Czarnikow said yesterday.

“The moment world prices rally to a level Indian exports are profitable, there is scope for a lot of Indian sugar to move out and as a result cap the world price,” said Charlotte Kingsman, an analyst with Kingsman, a unit of McGrawHill Financial Inc.’s Platts. “Any surplus in the Indian crop will look to be exported if the world price is right.”

Raw sugar for October delivery fell 0.6 percent to 17.32 cents a pound on ICE Futures U.S., while white sugar retreated 0.5 percent to $460.30 a ton on NYSE Liffe in London.

High Recovery

Farmers in India planted cane in 4.4 million hectares as of July 4, compared with 4.5 million hectares a year earlier, Agriculture Ministry data show. The area in Maharashtra, the nation’s biggest sugar maker, was 845,000 hectares, up from 841,000 hectares while it rose to 1.94 million hectares from 1.93 million hectares in Uttar Pradesh, the second-biggest.

The monsoon rains, which account for more than 70 percent of India’s annual showers, has been 43 percent less than a 50-year average since June 1 amid forecasts for an El Nino that’s previously caused droughts, according to the India Meteorological Department. Abundant dam waters may help cane survive the effects of a possible drought, said Sudha Acharya, a senior analyst at Kotak Commodity Services Ltd. in Mumbai.

The chances of a drought in India have increased to 60 percent from about 25 percent in April amid forecasts for El Nino, Skymet Weather Services., a New Delhi-based private forecaster, said last week. The weather event, which can roil world agricultural markets as farmers contend with drought or too much rain, may be established by September, according to climate models surveyed by Australia’s Bureau of Meteorology.

Irrigation Access

More than 90 percent of the cane grown in India had access to irrigation at the end of 2010-2011 compared with about 58 percent for rice, according to the Agriculture Ministry. The nation’s 85 main dams held 38 billion cubic meters as of June 26, almost 102 percent of last year’s storage, according to the Central Water Commission.

Farmers are planting more cane as they “are getting one of the best prices,” said Abinash Verma, director general of Indian Sugar Mills Association. Growers earn more from planting cane than crops such as wheat, rice, soybeans or turmeric, according to Verma. They get 75,000 rupees for a hectare of cane compared with 45,000 rupees for wheat or rice, he said.

A rally in local refined sugar prices amid a below-normal monsoon will render exports unprofitable, said Michael McDougall, a senior vice president at Newedge Group in New York.

Refined sugar prices climbed to a five-week high on June 24 on the National Commodity & Derivatives Exchange in Mumbai. The government will pay 3,300 rupees ($55) for every ton of raw sugar exported until September as it wants mills to clear payment of about 110 billion rupees for cane supplies, Food Minister Ram Vilas Paswan said on June 23.

Shipments totaled about 2.05 million tons since Oct. 1, compared with full-year sales of 350,000 tons in 2012-2013, the mills association estimates. Exports are seen at 1.5 million tons in 2014-2015, according to the U.S. Department of Agriculture.

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