(BusinessWeek) – Sugar output in India, the world’s largest producer after Brazil, is set to climb for the first time in three years as a subsidy for raw exports and abundant dam water spur farmers to increase planting.
Production may gain 5 percent to 25 million metric tons in the harvesting season starting Oct. 1, said M.G. Joshi, managing director of the National Federation of Cooperative Sugar Factories Ltd., which accounts for 48 percent of the national output. The area under the crop will increase in Uttar Pradesh and Maharashtra, the biggest growers, he said.
Prospects for higher Indian output may halt a rally in raw-sugar futures in New York and extend a global glut into a fifth year. A bigger Indian harvest will boost exports of subsidized raw sweetener, bridging any potential decline in supplies from Brazil due to dry weather.
“Farmers are opting for cane even if they are getting lower prices this year as there is assured demand and return for the crop,” said Sanjeev Babar, managing director of Maharashtra State Cooperative Sugar Factories Federation, which represents 173 mills. “Reservoirs are full and good rainfall last year has improved moisture in soil.”
India announced a cash subsidy for exports of as much as 4 million tons over two years and interest-free loans to mills to allow them pay arrears to farmers. Producers including Bajaj Hindusthan Ltd. (BJH) and Shree Renuka Sugars Ltd. (SHRS) are betting on exports to prevent stockpiles expanding from a five-year high.
Competitive Crop
Farmers will stick with cane as no other crop is as competitive, according to Avdhesh Mishra, president of the Cane Committees’ Association, a grouping of farmers. Even if payments are delayed, farmers know that mills will clear the dues, he said by phone from Gorakhpur in Uttar Pradesh yesterday.
Cane production in Maharashtra will probably jump 26 percent to 85 million tons in 2014-2015, Babar said. Sugar output may climb 17 percent to 9 million tons if the monsoon is normal, he said. Farmers planted the crop on 565,000 hectares as of March 19, compared with 482,000 hectares a year earlier, Agriculture Ministry data showed. The area in Uttar Pradesh was little changed at 1.22 million hectares, the data show.
“There is a turnaround in domestic sentiments after the government decided to subsidize exports of raw sugar and a downward revision in output” this year, said Sudha Acharya, a senior analyst with Kotak Commodity Services Ltd. in Mumbai. “The increased demand for summer also pushed up prices. Besides, the global rally in prices due to weather woes in Brazil helped Indian sentiments.”
Rising Exports
Shipments from India may total about 2 million tons in the 12 months through September, Acharya said. Exports totaled 1.3 million tons between October and February, compared with full-year sales of 345,000 tons in 2012-2013, according to the Indian Sugar Mills Association.
Futures in New York rallied 14 percent in February, the biggest monthly advance since June 2011. The contract for May delivery rose 2.3 percent to 17.36 cents on ICE Futures U.S. yesterday. Futures in Mumbai climbed to 3,104 rupees ($52) per 100 kilograms today the highest since August.
Monsoon rainfall was the highest since 2007 last year, boosting water levels in the nation’s reservoirs, the India Meteorological Department estimates. Water levels are 24 percent above last year, according to water resources ministry data.
