Drought Seen Shrinking India Sugar Harvest to Seven-Year Low

  • Cane planting declines in Maharashtra as drought worsens
  • Another monsoon failure may lead to imports: Societe Generale

India, the world’s second-largest sugar producer, may harvest the smallest crop in seven years after drought cut cane planting.

Output will probably drop 7 percent to 23.5 million metric tons in the year beginning Oct. 1, from an estimated 25.3 million tons this season, according to the median of estimates from seven traders, analysts and industry officials compiled by Bloomberg. That would be the lowest since the 18.9 million tons in 2009-10, Indian Sugar Mills Association data show. The government Thursday estimated 2016-17 output at 23 million tons to 24 million tons.

The first back-to-back shortfall in monsoon rainfall in three decades has left vast tracts of India reeling under a severe drought, prompting farmers to cut cane planting to conserve water for drinking. The decline in Indian output coincides with a shortfall in Thai and Chinese production, setting the stage for the first global deficit in five years. A 37 percent rally in prices in India in the past year prompted Prime Minister Narendra Modi this week to impose limits on amount of sugar traders can stockpile.

“India has sizable stocks and if there are sufficient stocks it will be comfortable,” Michael McDougall, a senior director at Societe Generale SA in New York, said in a telephone interview. “Imports for consumption are not possible unless the unthinkable happens, which means monsoon fails.”

No Shortage

India will have 30 million tons to 31 million tons of sugar available in 2016-17, including 7.3 million tons of stockpiles from the previous season and that would be enough to meet demand, the government said Thursday. “There is therefore likely to be no shortage of domestically produced sugar in India,” it said in an e-mailed statement.

The June-September monsoon rains are crucial to crops including sugar cane, rice and cotton as the rainfall in that period accounts for about 80 percent of India’s total and waters more than 50 percent of farmland. Rainfall is forecast to return to above-normal levels this year after recording shortfall of 14 percent and 12 percent in the previous two years, according to the India Meteorological Department.

The government may need to scrap the import duty on sugar if monsoon fails, McDougall said. “That will be their first move to scrap import duty to ensure adequate supplies. Right now it would be presumptuous to talk about imports.”

Maharashtra Planting

Output in Maharashtra, the biggest producer, may drop to 6 million tons to 6.5 million tons in 2016-17 from 8.3 million tons a year earlier, the Maharashtra State Cooperative Sugar Factories Federation Ltd. said in March.

Prospects of a smaller crop have sent prices in India soaring and slowed exports, according to Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd. Shipments probably won’t exceed 1.4 million tons in the year through Sept. 30, less than a government target of 3.2 million tons, he said on April 25.

Refiners may accelerate imports of raw sugar as domestic supplies tighten, according to Tom McNeill, a director at researcher Green Pool Commodity Specialist Pty Ltd. “Raw sugar imports, mostly from Brazil will increase, and the export of white refined sugar from toll refining operations will reduce,” he said in an e-mail. “One obvious solution is to utilize toll refineries in Kandla” and other places to produce sugar for the domestic market rather than export, he said.

Raw sugar futures touched a 17-month high on March 23 at 16.75 cents a pound on ICE Futures U.S. in New York. Prices advanced as much as 1.6 percent to 15.96 cents on Friday, while futures in Mumbai surged as much as 2.5 percent to 3,345 rupees ($50) per 100 kilograms, the most since March.

Global prices may rally again as Czarnikow Group Ltd. predicts the biggest worldwide shortage of sugar in seven years. Supply may trail demand by 11.4 million tons of raw sugar in the 2015-16 season, the second-largest deficit on record, the London-based trader said in an e-mailed report on April 14.

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