Sugar up 24% on deficit forecast

Sugar prices have jumped 24 per cent in the past two months on global forecasts of shortage during the next crushing season.

Global tracking agencies have forecast sugar supply to be deficient in 2015-16. The International Sugar Organisation has forecast a deficit of 2.5 million tonnes and the US Department of Agriculture reckons the shortage will be 3.8 million tonnes.

India, too, has cut its production forecast to 27 million tonnes in 2015-16, 2 per cent lower than last year.

The benchmark Sugar M variety is trading at Rs 2,856 a quintal at the Vashi Agricultural Produce Market Committee near Mumbai against Rs 2,307 a quintal in early August.

Sugar in the US is up 21 per cent to 13.63 cents per pound from 11.27 cents per pound on August 1. Global sugar prices have risen 27.50 per cent since September 1.

"Sugar prices have risen in India on hopes that mills will be able to export this season," said Abinash Verma, director- general of the Indian Sugar Mills' Association.

Trade sources said Brazil, the world's sugar largest producer, had changed its fuel import policy due to a sharp depreciation in its currency. The Brazilian real has slumped over 30 per cent in two months, prompting the government to encourage production of ethanol from sugarcane for blending with petrol.

Brazilian government sources said hydrated ethanol sales jumped by 45 per cent between January and August this year over last year. In August alone, hydrated ethanol sales jumped 56 per cent in Brazil.

"The government recognises the problems faced by sugar mills. So the permission for four million tonnes of exports will work alongside the subsidy as the industry is not in a position to incur losses on sugar exports," said Narendra Murkumbi, managing director, Shree Renuka Sugars.

Sugar mills have decided to finalise export tenders at a notional loss of Rs 6,500 per tonne of raw sugar and Rs 3,500 a tonne of white sugar. The government's sugar export subsidy has been of no use in the last two years as it was announced in the middle of the crushing season by which time mills sign contract for local sales.

Sugar mills plan not to wait for the government to announce the subsidy this year as experience shows the price fell Rs 9,000 a tonne during the three months they waited for the announcement. The prevailing price, however, is still Rs 4,000 a tonne lower than the average cost of production.