Sugar output in India, the biggest producer after Brazil, is set to decline in the year from October as domestic prices fall on cheaper imports and dry weather curbs planting, the Indian Sugar Mills Association said.
Production will probably slide from 24 million metric tons in the year ending Sept. 30, M. Srinivaasan, president of the association, said in a phone interview. Decreasing local prices will hamper mills’ ability to make timely payments to farmers, encouraging them to switch to other crops, he said. He didn’t give a forecast for 2013-2014.
A lower harvest after two years of surplus may spur the world’s second-biggest consumer to boost imports further, curbing a slide in New York futures. Sugar slumped 16 percent in 2012 because of a second year of glut and Goldman Sachs Group Inc. cut its forecast this week to 18.5 cents a pound in three and six months from an earlier estimate of 22 cents, citing rising inventories. Cheaper sugar may extend a decline in food costs tracked by the United Nations.
“The domestic sugar situation right now is pretty bad,” said Srinivaasan. “We are going to have negative planting in consequence to that and also due to the drought situation in certain states. Imports are taking place too soon.”
Parts of Maharashtra and Karnataka states, which together account for 45 percent of India’s sugar output, have been facing drought in the past 24 months hurting monsoon and winter-sown crops, according to the farm ministry.
Indian refiners, seeking to profit from a slump in global prices, have contracted to import about 919,000 tons of raw sugar since Oct. 1, including about 190,000 tons for sale in the local market, said Abinash Verma, director general of the New Delhi-based association.
Mills want the government to raise the import tax on white and raw sugar to 60 percent from 10 percent to prevent inflows, Srinivaasan said. Mills are losing as much as 4 rupees on every kilogram (2.2 pounds) sold in Uttar Pradesh and Maharashtra, while those in Karnataka are losing about 5 rupees, Verma said.
Futures in India have fallen for four straight months after climbing to a 20-month high in August. The contract for delivery in February was little changed at 3,255 rupees ($59.99) per 100 kilograms on the National Commodity & Derivatives Exchange Ltd. at 4:10 p.m. in Mumbai. The March-delivery contract fell 0.2 percent to 18.49 cents a pound on ICE Futures U.S.
Shree Renuka Sugars Ltd., India’s biggest refiner, is importing raw sugar for domestic sales by paying the import duty as well as duty free for re-export, Managing Director Narendra Murkumbi said last month. Its refineries near Kandla and Haldia ports can process 1.7 million tons annually.
India may have stockpiles of 7 million tons to 8 million tons at the end of the crop season on Sept. 30, compared with 6 million tons at the start of the season as demand may total 22.5 million tons, he said.
Production will decrease to a three-year low of 25.6 million tons in 2012-2013 from 28.8 million tons a year earlier and 26.6 million tons in 2010-2011, according to the U.S. Department of Agriculture.