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News
Fall in area under cane likely to push sugar production down 7%
Date:
25 Jul 2016
Source:
The Financial Chronicle
Reporter:
Ritwik Mukherjee
News ID:
5789
Pdf:
Nlink:
While global traders see sugar shortage, Isma feels comfortable about supply
The Centre recently sounded a word of caution over a possible shortage in sugar supply. Its worries and concerns were reflected in the withdrawal of export subsidies in June. That’s not all. Traders are also speculating that the Centre may remove import taxes on raw sugar. The moves indicate that the government is serious about addressing the domestic sugar shortage issue.
In the first forecast for the crushing season 2016-17, the Indian sugar mills association (Isma) estimated that domestic sugar output would be at 23.26 million tonne against 25.1 million tonne in 2015-16. Thus output is likely to decline by 7 per cent in the crushing season 2016-17, beginning September, mainly due to fall in acreage under cane. Based on the satellite images, procured in the latter part of June, total acreage under sugarcane is estimated at 4.99 million hectares in crushing season 2016-17, which is 5.5 per cent less than 5.28 million hectares reported in 2015-16 season.
Echoing the Isma report, London-based trader ED&F Man Holdings has said dry weather, that hurt cane crop in India, will turn the world’s second-largest sugar producer into a net-importer as production falls next season. India will probably import 3 million tonne sugar, more than what it would export in the 2016-17 season that starts in October. Two years of dry weather will limit yields and reduce output by over 6 per cent, according to ED&F Man estimates, which trades about 9 million tonne of sugar a year.
Significantly, sugar consumption in India in the next season is pegged at 26.5 million tonne. Thus with a projected output of 25 million tonne, India will certainly need inbound shipments to bridge the gap.
ED&F Man report said forecasts of above-average monsoon rains this season won’t be enough for the next crop to recover. “This season, we will probably get quite a bit of monsoon rains. That’s going to benefit the 2017-18 crop, but it’s not going to be enough to fix the 2016-17 crop,” it said.
Isma, however, does not see any significant import possibility. With an estimated opening balance on October 1, 2016 of 7.1 million tonne, total sugar availability during 12 months of the next season will be 30.36 million tonne, enough to meet the domestic requirement of 26 million tonne for 2016-17 season, the Isma report said.
For the sugar season 2017-18, Isma said the opening balance of 4.3 million tonne as on October 1, 2017 will be sufficient to meet the domestic requirement for the two months of October-November 2017. Next to next year, by that time, the new season’s sugar production including the sugar produced in October-November 2017 would have come into the market.
Kamal Jain Trading Services in its report said, “The rain god is kind enough this year and with more than 107 per cent rain, standing crop will get better yield, resulting in the production to rise to 7 million tonne in Maharashtra (against earlier 8.4 million tonne) and Karnataka 4 million tonne (earlier 4.6 million tonne). Production in Brazil is also in full swing. It is expected to produce more than 36 million tonne sugar this year and thus market has started falling and is bound to come down to $500 per million tonne for white sugar, which went up to $570 per million tonne, and raw sugar will be at 18 cents per pound (went up to 20.74 cents per pound).
Good rains will be a boon to standing crop at all places, which will lead to 10 per cent increase in production, and will thus take the total production to 24-24.5 million tonne for 2016-17. It could exceed 30 million tonne in 2017-18.
Meanwhile, Indian sugar future increased 0.19 per cent to Rs 3,616 per quintal last week, at NCDEX. The key July contract declined by Rs 4 or 0.11 per cent to Rs 3,605 per quintal with an open interest of 1140. But October future improved by Re 1 or 0.03 per cent to Rs 3,834 per quintal with an open interest of 36040 lots. “If prices sustain above Rs 3,810-3,800 per quintal, we could expect bounce back to Rs 3,840/3,860 per quintal,” said Geofin Comtrade Research.
Sugar is expected to trade at 21 cents per pound by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Going forward, it estimates sugar to trade at 20 over 12 months time.
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