By Pratik Parija - Nov 8, 2012
Bloomberg
Indian farmers may reap at least 6 percent more sugar than forecast by the government and industry, extending the longest global glut in more than a decade and a bear market that began in September.
Output in the world’s second-biggest producer will reach 25.53 million metric tons in the season that began Oct. 1, according to a survey of 820 farmers across an area responsible for 93 percent of national output by Geneva-based SGS SA (SGSN) for Bloomberg. While that’s 2.6 percent less than a year earlier, the government expects output of 23.5 million tons and the Indian Sugar Mills Association predicts 24 million tons.
The extra sweetener would expand global supply already forecast by the International Sugar Organization to reach a record this season. Producers from Russia to Thailand raised output after prices averaged the most in three decades in 2011. Futures fell 28 percent since March on prospects for a third straight annual surplus, helping to contain the surge in global food costs caused by droughts in the U.S., Europe and Australia.
“If the actual crop is going to be more than expected it’s detrimental for the world market,” said Sergey Gudoshnikov, a senior economist at the ISO in London who has studied the commodity for about three decades. “For the time being the world sugar market is still in surplus.”
Raw-sugar futures fell 19 percent to 18.95 cents a pound this year on ICE Futures U.S. in New York. Prices, which reached 36.08 cents in February 2011, the highest since 1980, may drop to 18 cents by the year-end, based on the median of 15 trader and analyst estimates compiled by Bloomberg last month. It’s this year’s third-biggest decliner in the Standard & Poor’s GSCI Spot Index of 24 commodities, behind coffee and cotton.
World Index
Sugar’s slump this year contrasts with an 11 percent gain in the S&P GSCI Agriculture Index of eight commodities, as the worst U.S. drought since 1956 parched wheat, corn and soybeans. The MSCI All-Country World Index of equities rose 8.8 percent since the start of January as Treasuries returned 2.4 percent, a Bank of America Corp. index shows.
Farmers may harvest 381.7 million tons of cane this season, 6.7 percent more than last year, according to the SGS survey from Sept. 25 to Oct. 18 across six states. About 65 percent may be crushed for sugar, according to SGS, which used the average recovery rate of 10.34 percent over about the past decade for its output estimate. The rest will be used for jaggery, a local sweetener, livestock feed and seeding.
Six Months
India’s production in the past season was forecast at 24.35 million tons by SGS last November. The Indian Sugar Mills Association’s final estimate was 26.2 million tons. A year earlier, SGS predicted output of 23.27 million tons and the producer group 25.5 million tons. The association lowered its estimate to 24.2 million tons six months later.
A slower-than-average start to the monsoon, which provides about 70 percent of India’s annual rainfall, may have hurt the crop more than indicated by the survey. Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd. (SHRS), the country’s top refiner, predicts production will be 23 million tons, 9.9 percent less than the SGS estimate.
A smaller-than-expected crop may spur imports. While the country didn’t buy any sweetener last year, it purchased 2.43 million tons in 2009-2010, equal to about 8 percent of global stockpiles at the end of that marketing year, U.S. Department of Agriculture data show.
Raw Imports
India will probably produce 23 million tons this year and a possible supply squeeze in December could lift imports in the the fourth quarter, Wayne Gordon, an analyst at UBS AG in New York, wrote in an Oct. 25 report. Refiners are already using a trade regulation which allows duty-free imports of raw sugar and exports of refined sweetener, Murkumbi said in October.
Rising Indian demand for imports may not be enough to halt the rout in international prices. World supply including inventories will climb 3.7 percent to 240.6 million tons in 2012-2013 and imports will decline 6.5 percent, according to the ISO. The group, which has more than 80 member states, estimates the glut at 5.9 million tons.
Hedge funds cut bullish bets on sugar by 75 percent since early August, U.S. Commodity Futures Trading Commission data show. Open interest in raw-sugar futures declined about 8.7 percent since mid-June, bourse data compiled by Bloomberg show.
Sugar had the biggest drop this year of any of five food indexes tracked by the United Nations’ Food & Agriculture Organization. The Rome-based group’s sugar gauge slumped 13 percent through the end of September even as the combined measure across 55 edible commodities advanced 2.4 percent. The index jumped 8 percent since June as drought damage spread.
Marketing Year
The decline in output from a year earlier and trade barriers mean Indian growers still expect higher returns even as global costs plunge. Farmers anticipate a 22 percent gain in average cane prices this marketing year, the SGS survey showed. Sugar futures traded in Mumbai climbed 21 percent in the past year and touched 3,672 rupees per 100 kilograms (30.7 cents a pound) in August, the highest level in more than 18 months.
“A rally in local sugar prices and expectations of better cane returns encouraged farmers to plant more,” said Mark Oulton, the market research director for SGS in Wilkes-Barre, Pennsylvania. “The crop was profitable.”
While farmers increased the amount of land planted with cane by 9.8 percent this year, yields may drop 2.8 percent, the survey showed. The delayed monsoon damaged crops and reservoirs supplying irrigation had below-average water levels. About 19 percent of the cane was in poor condition this year, from 6 percent the previous season, the survey showed.
Cane Growing
The harvest in Maharashtra, the biggest sugar-producing state, may decline 5.7 percent, with 3 percent of the crop reported to be in good condition, from 38 percent a year earlier, according to the survey. That contrasts with Uttar Pradesh, the largest grower of cane, which is expected to reap almost 13 percent more. About 34 percent of fields were in good condition, from 6 percent the previous season.
“There are no signs of the global surplus disappearing any time soon,” said Eugen Weinberg, the head of commodity research at Commerzbank AG in Frankfurt.
“Supplies are very comfortable.”
Bloomberg
Indian farmers may reap at least 6 percent more sugar than forecast by the government and industry, extending the longest global glut in more than a decade and a bear market that began in September.
Output in the world’s second-biggest producer will reach 25.53 million metric tons in the season that began Oct. 1, according to a survey of 820 farmers across an area responsible for 93 percent of national output by Geneva-based SGS SA (SGSN) for Bloomberg. While that’s 2.6 percent less than a year earlier, the government expects output of 23.5 million tons and the Indian Sugar Mills Association predicts 24 million tons.
The extra sweetener would expand global supply already forecast by the International Sugar Organization to reach a record this season. Producers from Russia to Thailand raised output after prices averaged the most in three decades in 2011. Futures fell 28 percent since March on prospects for a third straight annual surplus, helping to contain the surge in global food costs caused by droughts in the U.S., Europe and Australia.
“If the actual crop is going to be more than expected it’s detrimental for the world market,” said Sergey Gudoshnikov, a senior economist at the ISO in London who has studied the commodity for about three decades. “For the time being the world sugar market is still in surplus.”
Raw-sugar futures fell 19 percent to 18.95 cents a pound this year on ICE Futures U.S. in New York. Prices, which reached 36.08 cents in February 2011, the highest since 1980, may drop to 18 cents by the year-end, based on the median of 15 trader and analyst estimates compiled by Bloomberg last month. It’s this year’s third-biggest decliner in the Standard & Poor’s GSCI Spot Index of 24 commodities, behind coffee and cotton.
World Index
Sugar’s slump this year contrasts with an 11 percent gain in the S&P GSCI Agriculture Index of eight commodities, as the worst U.S. drought since 1956 parched wheat, corn and soybeans. The MSCI All-Country World Index of equities rose 8.8 percent since the start of January as Treasuries returned 2.4 percent, a Bank of America Corp. index shows.
Farmers may harvest 381.7 million tons of cane this season, 6.7 percent more than last year, according to the SGS survey from Sept. 25 to Oct. 18 across six states. About 65 percent may be crushed for sugar, according to SGS, which used the average recovery rate of 10.34 percent over about the past decade for its output estimate. The rest will be used for jaggery, a local sweetener, livestock feed and seeding.
Six Months
India’s production in the past season was forecast at 24.35 million tons by SGS last November. The Indian Sugar Mills Association’s final estimate was 26.2 million tons. A year earlier, SGS predicted output of 23.27 million tons and the producer group 25.5 million tons. The association lowered its estimate to 24.2 million tons six months later.
A slower-than-average start to the monsoon, which provides about 70 percent of India’s annual rainfall, may have hurt the crop more than indicated by the survey. Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd. (SHRS), the country’s top refiner, predicts production will be 23 million tons, 9.9 percent less than the SGS estimate.
A smaller-than-expected crop may spur imports. While the country didn’t buy any sweetener last year, it purchased 2.43 million tons in 2009-2010, equal to about 8 percent of global stockpiles at the end of that marketing year, U.S. Department of Agriculture data show.
Raw Imports
India will probably produce 23 million tons this year and a possible supply squeeze in December could lift imports in the the fourth quarter, Wayne Gordon, an analyst at UBS AG in New York, wrote in an Oct. 25 report. Refiners are already using a trade regulation which allows duty-free imports of raw sugar and exports of refined sweetener, Murkumbi said in October.
Rising Indian demand for imports may not be enough to halt the rout in international prices. World supply including inventories will climb 3.7 percent to 240.6 million tons in 2012-2013 and imports will decline 6.5 percent, according to the ISO. The group, which has more than 80 member states, estimates the glut at 5.9 million tons.
Hedge funds cut bullish bets on sugar by 75 percent since early August, U.S. Commodity Futures Trading Commission data show. Open interest in raw-sugar futures declined about 8.7 percent since mid-June, bourse data compiled by Bloomberg show.
Sugar had the biggest drop this year of any of five food indexes tracked by the United Nations’ Food & Agriculture Organization. The Rome-based group’s sugar gauge slumped 13 percent through the end of September even as the combined measure across 55 edible commodities advanced 2.4 percent. The index jumped 8 percent since June as drought damage spread.
Marketing Year
The decline in output from a year earlier and trade barriers mean Indian growers still expect higher returns even as global costs plunge. Farmers anticipate a 22 percent gain in average cane prices this marketing year, the SGS survey showed. Sugar futures traded in Mumbai climbed 21 percent in the past year and touched 3,672 rupees per 100 kilograms (30.7 cents a pound) in August, the highest level in more than 18 months.
“A rally in local sugar prices and expectations of better cane returns encouraged farmers to plant more,” said Mark Oulton, the market research director for SGS in Wilkes-Barre, Pennsylvania. “The crop was profitable.”
While farmers increased the amount of land planted with cane by 9.8 percent this year, yields may drop 2.8 percent, the survey showed. The delayed monsoon damaged crops and reservoirs supplying irrigation had below-average water levels. About 19 percent of the cane was in poor condition this year, from 6 percent the previous season, the survey showed.
Cane Growing
The harvest in Maharashtra, the biggest sugar-producing state, may decline 5.7 percent, with 3 percent of the crop reported to be in good condition, from 38 percent a year earlier, according to the survey. That contrasts with Uttar Pradesh, the largest grower of cane, which is expected to reap almost 13 percent more. About 34 percent of fields were in good condition, from 6 percent the previous season.
“There are no signs of the global surplus disappearing any time soon,” said Eugen Weinberg, the head of commodity research at Commerzbank AG in Frankfurt.
“Supplies are very comfortable.”
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