|Chennai||Rs. 24020.00 (-0.17%)|
|Mumbai||Rs. 25020.00 (0.28%)|
|Delhi||Rs. 24450.00 (0%)|
|Kolkata||Rs. 24600.00 (-0.32%)|
|Kerala||Rs. 24050.00 (0%)|
|Bangalore||Rs. 24160.00 (-0.17%)|
|Hyderabad||Rs. 24030.00 (-0.12%)|
The 2012-13 world sugar season would start in about a week. But we already have first global production and seasonal surplus estimates from Jonathan Kingsman (he owns an eponymous consultancy) to Rabobank to International Sugar Organisation (ISO). As we have routinely seen in the past all such forecasts come for revisions more than once as the season progresses depending on behaviour of weather, particularly in major cane and beet growing regions.
To give a recent example, rain-related disruptions in cane harvesting earlier this year has led to lowering of Brazilian sugar production estimate and in turn, global surplus.
Here at home, the monsoon has run its course this time in a way as to negatively impact the cane crop in Maharashtra and Karnataka. In both states, due to insufficient rains in the beginning, land is less under cane and factories are reconciled to a lower sugar recovery rate than in 2011-12. Moreover, drought condition earlier led Maharashtra to use of some standing cane crop as fodder. As a result, pre-monsoon robust optimism about 2012-13 sugar output gave way to some moderation. Ahead of the monsoon with the weatherman predicting good rains, the general expectation was that farmers buoyed by highly rewarding cane prices and practically no outstanding cane bills would grow the crop over a bigger area. This would have ensured sugar production next season at par with 26 million tonnes (mt) in 2011-12, if not larger.
The capricious monsoon till July end, however, played spoilsport. So, production estimates for 2012-13 now range from a low of 23.5 mt by ED&F Man to a high of 24.5 mt by National Federation of Cooperative Sugar Factory (NFCSF), which should know better than any other agency as to how much sugar to expect from Maharashtra, by far the country’s biggest sugar producing centre. Indian Sugar Mills Association thinks production will be 24 mt.
How much land farmers in a country will commit to cane or beet during a season will necessarily depend on how returns from the crop are stacked against other agricultural produces. Cane has this time come winner both here in this country and China.
The land under cane in India is up by 254,000 hectares to 5.354 m hectares, in spite of shrinkages in Maharashtra and Karnataka. ISO will attribute the next season’s rise in Chinese sugar production by 1.1 mt to 13.6 mt to remunerative cane and beet prices. Next season will be the third in a row when Indian production of the sweetener will be in excess of consumption, which is rising at an annual rate of around four per cent, against global average of 2.2 per cent.
If this feat of production staying ahead of domestic use is repeated again in 2013-14, then we shall be overcoming the jinx of the sugar cycle.
Typically, it’s a five-year cycle of three consecutive good years of production followed by lean output in the following two years caused by diversion of land from cane to other crops as uncleared cane bills keep piling up with cash-strapped factories. “You will recall our food minister K V Thomas is committed to break this cycle, which has done considerable harm to the sugar economy, by enlisting the support of factories and farmers. No question that cane cultivation must at all times be a rewarding pursuit for farmers. The Rangarajan committee has recommended far-reaching reforms in the sugar sector, including total decontrol and factories sharing profits with cane growers,” says former ISMA president Om Dhanuka.
The world once again got a demonstration of how quickly New York raw futures and NYSE Liffe white sugar will change course with any adverse or favourable weather announcements for Brazil and India, the world’s two leading producers. Haven’t we seen raws driven close to 24 cents a pound in July end on crop concerns in the two countries. Now prices have weakened considerably on crop outlook improvement in Brazil and India.
According to Kingsman, the expectation of a comfortable global sugar surplus resulting too, from Chinese production rising 10.4 per cent to 13.82 mt and Russian output staying good once again moderating their import requirements during 2012-13 season will weaken prices. Kingsman has, however, cut global surplus projection by 1.4 mt to 6.7mt anticipating production at 177.3 mt and consumption at 170.6 mt. ISO, however, projects surplus rising 13 per cent to 5.9 mt from 5.2 mt. Rabobank too sees it going up by 600,000 tonnes to 5.2 mt tonnes. Take the median of all estimates, there is no getting away from a bearish spell.
Two outside chances of this spell being broken, however, remain.
ED&F Man says if the forecast rains return to Brazil’s centre south region forcing factories to leave cane in the fields, then bulls could have their play. Moreover, in the event of Brazil mandating that in blended gasoline the percentage of ethanol will have to be 25 per cent and not 20 per cent as now, then that could give a leg-up to sugar prices.
The failure of maize crop in the US in the wake of the worst drought since 1956 leading to over 20 per cent surge in corn prices has improved biofuel export prospects for Brazil.