India's Sugar Output Is Set to Rebound From 7-Year Low

  • Above normal monsoon showers seen boosting output in India
  • Stockpiles seen at 3.4 million tons by Oct. 1 on 2016-17 crop

A day laborer carries a bundle of harvested sugercane in Taloda, Maharashtra, India.

Photographer: Dhiraj Singh/Bloomberg

India’s sugar production is set to rebound from a seven-year low as above-normal monsoon rain in the world’s largest consumer helps the cane crop that will be crushed from Oct. 1.

Domestic output is likely to rise for the first time in three years to 25 million metric tons, according to the median estimate of seven traders, analysts and industry officials surveyed by Bloomberg. That compares with 20.3 million tons in 2016-17, according to the Indian Sugar Mills Association, which is yet to make a forecast for 2017-18.

A rebound in India’s sugar production will add to an expected global surplus in 2017-18, further pressuring New York futures that have tumbled more than 30 percent in the past year and are hovering near 16-month lows. While India’s consumption growth is flat, the U.S. Department of Agriculture predicts global sugar demand is set to fall for the first time in two decades amid taxes on sodas, health concerns and reduced spending in developing nations.

“Timely and above-average monsoon rainfall so far is prompting farmers to increase planting,” said Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories Ltd. “Sugar cane is farmer friendly as it has an assured market with guaranteed price.”

Production estimates in the Bloomberg survey ranged between 24.5 million tons and 26 million tons.

Sugar for October delivery fell as much as 1.5 percent to 13.71 cents a pound on ICE Futures U.S. on Wednesday. Money managers have been increasing their bearish raw sugar bets, with the net-short position the most bearish in more than two years, Commodity Futures Trading Commission data show.

The brighter production outlook follows India Meteorological Department’s prediction of a normal monsoon for a second year in 2017 after back to back droughts. Rain in June was 4 percent above normal, with most of the country receiving normal or excess showers that benefited crops. Sugar cane was planted on 4.75 million hectares (11.7 million acres) as of June 30, up from 4.48 million hectares a year ago, according to the farm ministry.

Sugar stockpiles on Oct. 1 may drop to 3.4 million tons from 7.7 million tons a year earlier, according to the survey. Production in 2016-17 was hurt by dry weather in key producers.

Lower inventories may see India import the sweetener in the rest of the 2016-17 season. Two survey respondents said imports may be 500,000 tons and one predicted purchases of 2 million tons. The volume of possible imports in 2017-18 will depend on the government’s policy to allow duty-free purchases, even as raw sugar imports could be viable at a 40 percent import duty, according to two of the survey participants.

“I still think India could surprise later in the year and come back to the market," said Warren Patterson, a commodities strategist at ING Groep NV. “Next year is likely to be largely balanced, and so again, without further imports stocks are still going to be tight at the end of next season.”

Sugar Mills

India switches between being a sugar importer and exporter and has allowed 500,000 tons of duty-free raw sugar imports to supplement domestic supplies in 2016-17. The domestic market is signaling that there’s no shortage of sugar as prices have declined in the last four months, according to Abinash Verma, director general of ISMA.

“The India coastal refiners will be reluctant to go against the desire of the government and the sugar industry by importing raw sugar” at the 40 percent duty, said Sean Diffley, head of sugar and ethanol research at Tropical Research Services. “If the India domestic sugar market rallies as a result, they win. If the government releases another tranche of duty-free sugar imports as a result, they win too.”

Import margins under a second tranche of duty-free imports authorized by the government would be higher, and refiners wouldn’t incur the wrath of government or industry, he said.

The federal government increased the minimum price at which most mills buy sugar cane from farmers by 11 percent to 255 rupees ($3.93) per 100 kilograms in the 2017-18 season from a year earlier, Verma said. Sugar mills should sell sugar for at least 36 rupees to 37 rupees per kilogram to make crushing viable and are currently selling the sweetener at 35.5 rupees, he added.

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