Sugar Futures May Ease In Morning Trade On Thursday - July 31 , 2008

MUMBAI: Sugar futures may ease in morning trade on Thursday on hopes of higher supplies in the spot market ahead of an anticipated festival demand from August, analysts said.

The sugar September futures ended up 0.76 percent at 1,722 rupees per 100 kg on the National Commodity and Derivatives Exchange on Wednesday. But government allowing exports to the US from the 2007/08 free sale quota and strong spot demand may limit the losses, they added.

World, Indian Sugar Rates Set To Soar - July 29 , 2008

Mumbai: After a lukewarm performance last two years, the global sugar market is showing promising signs of rebound in prices. India is likely to play a key role in lending strength to global prices. Deteriorating prospects for sugar crops in two of the world's largest producers Brazil and India, combined with the world's largest importer Russia re-foraying the market have meant that the price weakness will soon become a thing of the past. World sugar market fundamentals are set to stiffen next season. In 2007-08, world sugar consumption estimated at about 160 million tonnes (mt) is set to trail output (171 mt) by over 10 mt which will be available as excess.

Sugar output in Asia represented by India, China and Pakistan is set to be lower than in the previous year. Even in the European Union, following uncertainties relating to reforms, there exist the strong possibility of lower sugar production (from beet). As is axiomatic, in a tightly balanced commodity market, even a small change in either demand or supply or both will have a disproportionately larger impact on market prices. Deviant weather in cane growing States such as Maharashtra, Andhra Pradesh and Karnataka has created risk of yield loss. As result, the preliminary expectation of 2008-09 sugar output is 22-23 mt versus 27 mt of previous year. Indian sugar exports from 2007-08 season have already reached 3.5 mt and may potentially reach 4.0 mt.

Sugar future touches upper circuit - July 16, 2008

Mumbai: Sugar futures in NCDEX touched the upper circuit of 4.03 per cent at Rs 1,626 a quintal following reports of drought-like situation due to insufficient monsoon in Maharashtra. Lower acreage under sugarcane cultivation is also hoped to bring down the output next season. Castorseed also touched the upper circuit of 4 per cent at Rs 647 per 20 kg due to export demand and sharp fall in acreage under castor cultivation in the ongoing kharif season. Maize earned 2 per cent at Rs 998 a quintal on account of short covering followed by fresh buying in expectation of shortage of stock to meet the domestic demand. Turmeric prices closed on positive note at Rs 4,748 a quintal, up 2.09 per cent on the back firm spot market. In MCX, cardamom increased 2.15 per cent at Rs 642 for 20 kg on robust export demand and lack of rainfall in major growing areas of Kerala. Mentha oil increased 1.73 per cent to Rs 753 a kg on strong export demand and firm spot price.

Global Sugar Market Has Been Rather Dormant

Mumbai: The global sugar market has been rather dormant for sometime now, with the underlying weakness preventing hectic activity. For 2007-08, the market is clearly in surplus; there is simply too much sugar and few takers.

Large carryover in two of the world’s largest producers – Brazil and India – as also weak demand from even traditionally large importers such as Russia has merely added to the woes of the market.

But there are indications that the large surplus may soon give way to a more finely balanced market in 2008-09. This surely will have implication on the world sugar prices. Once again, the situation in Brazil and India needs to be watched carefully.

Cane output

In Asia, both India and China are most likely to harvest smaller crops.

On the other hand, the size of Brazil’s cane output is expected to reach 490-500 million tonnes (mt). Even if a larger part of cane is diverted for ethanol (driven by high energy prices), the country would still produce more sugar in 2008-09.

The incremental output is currently estimated at 2 mt. In other words, enough cane would be available in 2008-09; but the key to sugar market dynamics is to know how much cane would Brazilian millers utilise for ethanol and how much for sugar.

Ethanol parity level

In order to ensure that Brazilian millers maximise ethanol output and are not tempted to increase sugar production (beyond say 2 mt), sugar prices need to remain below their ethanol parity level, according to experts. However, some support for the market could come from an increase in Brazilian gasoline prices, which would increase the level to which sugar prices can rise without becoming more attractive than ethanol.

Similarly, enhanced opportunities for ethanol exports to the US and the EU will also encourage ethanol output, thereby, providing some relief to the sugar market, experts added.

For 2008-09, it is tentatively estimated that the world sugar production may decline by around 6 mt (raw value) in the wake of smaller crops in Asia, in general, and anticipated downturn in India and China, in particular. Consumption, on the other hand, is expected to continue to grow by around 1.7 per cent. This will surely leave much smaller surplus of about 2 mt in 2008-09 against about 10 mt in 2007-08.

Domestic situation

For 2007-08, sugar production is expected to be a record 27-28 mt, with comfortable availability of cane (340 mt). Trailing domestic consumption means there is a huge surplus, a part of which the country is seeking to dispose of in the export market. The volume of Indian sugar exports will depend not only on international prices but also on domestic prices. While international prices are weak, domestic market has improved recently, making exports so much less viable. A firmer rupee too, has not helped in recent months, although lately the rupee has weakened from levels three months ago.

Cut in area, output

With the crushing season expected to slowly grind to a halt, the market has already begun to look at the next season.

Planting numbers suggest a reduction in crop area and a sharp decline in cane output that would be ready by October-November 2008. Some forecast put the decline in crop size by as much as 20 per cent. The emerging situation is fraught with possibilities.

Monsoon & festivities

Although the Government has released a part of the buffer stock to dampen prices, the onset and progress of southwest monsoon will have a bearing on prices. A series of festivals during August-October would increase sugar consumption manifold. Importantly, on current reckoning, the prospects for the next crop are none-too-bright.

In this emerging scenario, sugar prices are most likely to surge in the coming months from the current level of around Rs 1,550 a quintal in the wholesale market.

With elections round the corner, the government would be hard pressed to contain prices. Despite current surplus, restrictions on sugar exports cannot be ruled out.

Mills and traders will continue to build inventory in anticipation of a rising market. Consumers will have to brace themselves to pay a higher price for their favourite sweetener.

SC Asks UP Sugar Mills To Pay Rs 110/Qtl For Cane Within Three Weeks

New Delhi: The Supreme Court’s order on Thursday requiring sugar mills in Uttar Pradesh to pay growers of Rs 110 per quintal “within three weeks” for cane purchased during the 2007-08 season (October-September) would entail their making disbursements of over Rs 2,300 crore.

During the recent season, UP mills had procured cane from farmers, against which Rs 8,164.86 crore was payable at the rate of Rs 110 per quintal fixed by the Lucknow Bench of the Allahabad High Court on November 15, 2007.

However, as on May 12, the mills had paid only Rs 5,842.49 crore. That leaves arrears of Rs 2,322.37 crore, which will now have to be discharged within the next three weeks. Of the Rs 2,322.37 crore, private mills owe the bulk of Rs 1,681.95 crore, with cooperatives (Rs 389.35 crore) and State Government-owned mills (Rs 251.07) crore) accounting for the rest.

Separate orders

Some of the sugar companies, including Bajaj Hindusthan, had obtained separate orders from the Allahabad High Court (not the Lucknow Bench) requiring them to pay only the Centre’s statutory minimum price (SMP) of Rs 81.18 per quintal, linked to a base sugar recovery of nine per cent. This was below the flat Rs 110 per quintal rate fixed by the Lucknow Bench and also the State Advised Price (SAP) of Rs 125 per quintal that was earlier decided by the UP Government.

But the Supreme Court has now, in its latest order, directed the mills to pay the Rs 110 per quintal interim rate that was fixed by the Lucknow Bench. The apex court will review this order in July (when it reopens after the summer recess), by which time the Allahabad High Court is also expected to pronounce its final judgment on sugarcane pricing and the fixing of SAP by the State Government. The High Court, on May 9, reserved its judgment.

Dues by cos

The Supreme Court’s interim order, passed by a Bench headed by Justice Arijit Pasayat, would particularly affect Bajaj Hindusthan and the U.K. Modi Group, which have arrears to the tune of 35 per cent and 66 per cent respectively of their total payable amount.

Others with dues in excess of 20 per cent include Mawana Sugars (29 per cent), the K.K. Birla Group and DCM Shriram Industries (24 per cent each), Triveni Engineering and Dhampur Sugar (22 per cent each), Simbhaoli Sugars (21 per cent) and Uttam Sugar (20 per cent).

On the other hand, companies such as DCM Shriram Consolidated (four mills at Ajbapur, Rupapur, Hariyawan and Loni), Sir Shadi Lal Enterprises (two mills at Shamli and Unn) and Parle Biscuits (one unit at Parsendi) have discharged 95 per cent or more of their cane payments. Balrampur Chini’s arrears, too, are relatively low at 14 per cent.

Sugar Mills May Be Hit As Cane Area Shrinks

New Delhi: The country’s two leading sugar producing States — Uttar Pradesh and Maharashtra — may see significant reductions in cane availability during the ensuing 2008-09 crushing season (October-September).

Farmers in UP normally plant sugarcane during March-May, which is ready for crushing after 10-11 months from the subsequent late-January to April period. “This year, plantings are down by about 15 per cent. The area is lower by 10 per cent in western UP, 15 per cent in central and 20 per cent in the eastern region,” said C B Patodia, Adviser to the K K Birla Group of Sugar Companies.

But the problem is not just in respect to the plant-cane, but also the ratoon crop that does not require any planting and sprouts from the root stubbles of the harvested plant-cane. The ratoon is a shorter nine-month crop maturing between November and January, depending on when the previous plant-cane was harvested.

“Some growers this time have chosen not to tend even the ratoon crop. Instead, they have sown urad (black matpe) or jowar (sorghum) for fodder use. Both these can be harvested prior to the planting of paddy from June onwards. In a few cases, where the plant cane was harvested towards late-January, farmers have even gone for short-duration wheat,” according to Sanjay Tapriya, Director (Finance), Simbhaoli Sugars Ltd.

Changing preference

Anil Singh, General Secretary of the Kisan Jagriti Manch, said “wherever water-tables are high, especially along the Ganga and Yamuna river-beds, farmers are preferring paddy, for which they have already raised the nurseries”.

Growing cane had turned a ‘bitter experience’ for farmers, considering the Rs 2,400 crore of arrears in payments owed to them by mills in the current 2007-08 season.

“When returns from paddy, wheat, cotton or pulses are far more remunerative, why should any farmer lock up his land under sugarcane for more than twice the duration? The shift to paddy will be more in central and eastern UP than in the western parts, where the flexibility to forsake cane is less,” the farmer leader pointed out.

That would, in turn, hit cane supplies to mills in the coming season and more so during 2009-10, when the reduced planted cane area of this year would spill over to the subsequent ratoon crop.

The cane that is crushed in the early part of the season in UP (November-January) is largely the ratoon crop, with the harvested plant-cane being used from late-February till May (when mills close operations). “About 60-65 per cent of the cane crushed during the season is constituted by the ratoon crop and the remaining 35-40 per cent by the plant-cane,” Tapriya informed.

In Maharashtra, about three-fourths of the cane crushed by mills is the 15-month pre-seasonal crop, sown during July-September. “Our farmers planted about 20 per cent less pre-seasonal cane in July-September 2007, which is to be used in the new season. They have mostly shifted to soyabean, maize or sunflower, with many of them even uprooting the ratoon crop last September-October,” noted Prakash Naiknavare, Managing Director, Maharashtra State Cooperative Sugar Factories’ Federation.

During the current season, Maharashtra mills have, as on May 12, crushed 733.26 lakh tonnes (lt) of cane and produced 87.09 lt of sugar at an average recovery of 11.88 per cent. During the same period of the 2006-07 season, these numbers stood at 749.11 lt, 86.01 lt and 11.48 per cent.

“Though we crushed less cane this time, we have ended up producing more sugar because of unprecedented high recovery rates. On the whole, we expect to end the 2007-08 season with sugar output marginally below the previous season’s 90.91 lt, and the quantity of cane crushed falling from 798 lt to 775 lt,” Naiknavare added.

He projected a sharp drop in cane available for crushing in the 2008-09 season to 610 lt, leading to a sugar output of 68 lt, “with the situation turning further bullish in 2009-10”. Patodia estimated UP’s sugar output in 2008-09 at 65 lt, down from 74 lt of the current season and 84.75 lt in 2006-07.

Implement Sugar Package In ‘Letter & Spirit’

New Delhi: The Union Finance Minister, P. Chidambaram, on Tuesday advised public sector banks to implement the scheme for extending financial assistance to sugar undertakings, popularly described as ‘sugar package’, in “letter and spirit”.

He has also asked banks that have not implemented the ‘sugar package’ to submit a final report in the next 10 days to the Finance Ministry on the status of its implementation.

“PNB has done it and they have given the list of sugar companies in which they have implemented the sugar package. Indian Bank and Indian Overseas Bank have done it. Other banks have been advised to complete the exercise and send us a final report on how many sugar mills have been given the facilities contemplated in the sugar package,” Chidambaram told reporters after a meeting with chief executives of public sector banks (PSBs) here today.

The Government had come out with a “Scheme for extending financial assistance to sugar undertakings 2007” to improve the liquidity position of the sugar undertakings. An improvement in the liquidity position would enable them to clear cane price arrears of 2006-07 and 2007-08 sugar seasons related to statutory minimum price (SMP).

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Official sources said that the objective of the scheme was to enable banks to give loans to the sugar undertakings in lieu of excise duty on sugar and obtain interest subvention from the Government on the loan.

Meanwhile, Chidambaram said that the final report would reach the Finance Ministry latest by February 22, and that in the next 10 days the sugar package would be implemented for all sugar mills that applied for benefits under the package.

Additional Release Of Sugar To Keep Prices On Leash

Chennai: The Centre’s move to release additional sugar under the free sale quota for February and March is likely to keep physical prices of the sweetener under control.

“For instance, 16 lakh tonnes of sugar will be available for sale through the open market during March. This is like sugar being made available during Diwali. Such huge quantity will give no chance for prices to increase,” said Praful Vithlani of Jagjivandas Keshavji and Co, a sugar brokerage firm.

Initial release

The Centre initially released 13 lakh tonnes (lt) each for January and February and 15 lt for March. Apart from this, two lt were to be available each month for sale through the public distribution system or ration shops from January to March.

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However, towards the middle of January, it released an additional one lt for that month and it was to be lifted from the factories by January 31. On January 31, it released an additional one lt for February through free sale before allocating another one lt for March.

Govt norms

As per the Government norms, the Centre decides on the quantity of sugar that can be sold in the open market and through ration shops. The allocation is made month-wise in an effort to ensure that the market does not crash due to oversupply. At the same time, any shortage, especially during festival periods, is also overcome through additional allocation.

Carryover

“What has happened is that only 12 lt of the 14 lt allocated for January has been lifted. That two lt have been carried over to this month,” Vithlani said.

Of the two lt that was not lifted, one lt was in Tamil Nadu, 60,000 tonnes in Maharashtra and 40,000 tonnes in other parts of the country.

“Along with the carryover, 16 lt of sugar are available for sale this month. We expect only 14 lt to sell, and again there could be a carryover of two lt. This will mean 18 lt will be available for sale in the open market in March,” he said. With such a trend, chances of prices gaining are bleak, according to Vithlani.

Drop in output

The Centre, too, is keen on ensuring that sugar prices do not flare up. Sugar prices have begun to move since the beginning of this year on reports of a lower than expected sugar production. The output, which was initially expected to top 300 lt, is now projected at a little over 270 lt. The Union Agriculture and Food Minister, Sharad Pawar, last week said the production was expected to be around 260 lt. Production is expected to drop further to 250 lt next sugar year starting October. Last year, production was 283 lt.

Current quotes

Medium or M-30 sugar on Tuesday was quoted at Rs 1,490 a quintal against Rs 1,446 on November 1 last. The price had increased to Rs 1,513 on January 25 before finding moving down. Small or S-30 sugar was quoted at Rs 1,430 against Rs 1,450 on January 25 and Rs 1,365 on November 1 last.

On MCX, small sugar closed at Rs 1,368 a quintal for March delivery and Rs 1,346 for delivery this month. On NCDEX, March contract was quoted at Rs 1,454 and that of Febuary at Rs 1,414. Quotes on both the exchanges were down compared with Monday.

Sugar Futures Expected To Trade Higher

Mumbai: After a lull, sugar futures on NCDEX are expected to trade on the higher side in the short to medium term due to delay in cane crushing in Uttar Pradesh and Maharashtra.

Caught between a bearish market and high cane advisory prices set by the Uttar Pradesh Government, sugar mills delayed crushing, leading to fall in production.

Sugar Season

The Union Agriculture Minister, Sharad Pawar, said recently that Indian sugar production in the ongoing sugar season started in October 2007 would fall by 8 per cent to 26 million tonnes (mt) due to the delay in crushing.

Earlier, the Indian Sugar Mills Association lowered its production estimates for 2007-08 by three mt to 30 mt. However, analysts predict that the fall could be more if the delay in crushing continued. The mills have also urged the Government to reduce the State advised prices from Rs 1,100 per quintal to Rs 900 per quintal.

The Union Agriculture Ministry has allocated 41 lakh tonnes as free sale quota for January-March. For January, 13 lakh tonnes have been allocated as non-levy quota.

“The Government decision augurs well for sugar mills as there are no major carry forward stocks from previous months,” said Sushil Sinha, Regional Head, Karvy Comtrade.

Export demand

Sinha said Bangladesh and Sri Lanka were showing keen interest to import sugar from India. The Government has recently allowed export of raw sugar along with refined sugar.

Brazil sugar output is set to be lower this year due to the sugar mills concentration on production of ethanol as it was fetching better margins.

“Brazilian cane mills are currently earning more from ethanol sales than sugar, and international sugar buyers will have to match or better the price of the biofuel,” said an analyst.

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According to recent reports, cane mills in Brazil have used up to 55 per cent of their crop for ethanol in the harvest that ended a few weeks ago. This compares with a near 50-50 mix from the previous crop season.

“The active Sugar M Grade currently trading at Rs 1,500 per quintal is expected to test Rs 1,575 per quintal in the short term. Later, a correction can be expected towards 1500-1475,” said Sinha.

Sugar Futures Firm On Low Production

Mumbai: Sugar futures were firm as there were expectations of lower sugar production. February contract on NCDEX opened higher with a gap.

Futures contract made an intra-day high of Rs 1,503 per tonne and an intra-day low of Rs 1,470 per tonne.

The contract closed nominally lower at Rs 1,500, up by Rs 30 from previous close.

Rising international sugar prices have created additional interest in the exporter community, said an analyst.

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In the international futures market, white sugar for March delivery gained $13.8 and closed at $351 per tonne in London. While raw sugar futures for March delivery gained 0.68 cent and closed at 12.45 cents a pound in US.

However the overall production of the sweetener is expected to be lower due to a long period of delay in crushing, said an analyst. As a result the prices are expected to be on a bullish trend, he added.