Monday 4 February 2008

India's Sugar Production May Beat Government Forecast

India, the world's second-biggest sugar grower, may produce more of the sweetener this year than a government forecast because of higher yields, the Indian Sugar Mills Association said.

Production may total 27 million metric tons in the year ending Sept. 30, compared with 26 million tons estimated by the farm minister last month, S.L. Jain, director general of the millers' group, said in an interview in Dubai late yesterday.

Indian sugar production, second only to that of Brazil, is expected to outstrip demand and may boost exports, slowing a rally in the price of sugar, the best performer in the UBS Bloomberg Constant Maturity Commodity Index this year.

``The upside will be limited and this will put pressure on prices,'' Harish Galipelli, head of research at Karvy Comtrade Ltd., said by phone from the southern city of Hyderabad today.

India's sugar output may fall 8 percent in the year ending September from 28.3 million tons a year ago because of a delay in crushing, Farm Minister Sharad Pawar said on Jan. 16. The Indian Sugar Mills Association earlier estimated output at 28 million tons, down from a forecast of 31 million tons made in December.

``The market had rallied with the lower output estimate given by the government earlier,'' Galipelli said.

Price Signals

Production may fall as low as 22 million tons by 2009 as a drop in prices last year curbed planting and prompted some farmers to switch to crops such as wheat, Narendra Murkhumbi, managing director of Shree Renuka Sugars Ltd., India's biggest sugar refiner, said at the conference.

``Low prices last year have not sent out good signals to farmers. It is bound to reflect in planting,'' Murkhumbi said. Output may total 28 million tons this year, he said.

Production fell to 6 million tons in October-December from 7.34 million tons a year earlier, according to provisional data from the National Federation of Cooperative Sugar Factories Ltd., a producers' group.

Output may drop to 22 million tons in the year ending Sept. 30, 2009, as farmers switch to wheat and oilseeds, Vinay Kumar, managing director of the federation said Dec. 5.

``It's too early to take a call on what will happen next year. Farmers are getting very good prices for sugar cane and there's no reason to cut planting,'' Jain said.

Prices Rally

Farmers may not reduce cane planting next year as prices have recovered, Jain said, adding that he expected sugar to trade between 12 cents and 14 cents a pound ``in the near term.''

``People who are talking about a lower Indian output are ignoring the higher recovery from crushing of a bigger crop,'' Jain said. ``There's not going to be any major shift away from sugar as prices have recovered.''

Sugar for March delivery rose 0.2 percent to 12.38 cents a pound on ICE Futures U.S., formerly the New York Board of Trade, at 9:33 a.m. London time. Sugar, which has gained 14.5 percent this year, reached a 17-month high of 13.09 cents on Jan. 17.

India may export at least 3 million tons of sugar in the year to Sept. 30, Jain said. Mills have sold 2.2 million tons, including 1.4 million tons of raw sugar, since Oct. 1, he said.

The International Sugar Organization says India may ship as much as 3 million tons a year of the sweetener until 2010.

The Indian Sugar Exim Corp., a producer-funded trading firm, has sold 800,000 tons of sugar since the beginning of October and may sell more if it receives ``attractive'' prices, said Jain, who's also a committee member of the company.