By Thomas Kutty Abraham, Bloomberg
Mumbai: Sugar output may rise to a record next year as farmers in the world’s second-biggest producer boost planting, increasing prospects for a bigger global surplus.
Output may climb to 27 million metric tons in the year to 30 September 2008, from an estimated 25 million tons, according to six producers and industry official.
Raw sugar prices have declined 38% in the past year, bucking gains in prices of other agricultural commodities such as corn, wheat and soybeans, amid forecasts global supply will exceed demand. Record output in India may lower the chances of a recovery in prices of the sweetener.
“It is definitely bearish for the market,” said Harish Galipelli, head of research at Karvy Comtrade Ltd. by telephone from the southern Indian city of Hyderabad. “Raw sugar may soon decline to 9.9 cents” a pound from yesterday’s close of 10.39 cents, he said.
Global production is headed for the first surplus in four years after price gains in 2004 and 2005 led growers in Brazil, the largest producer, and Asia to boost plantings. The International Sugar Organization last month forecast a surplus of 7.2 million tons, 24 % more than its previous estimate.
Brazil plans to boost sugar cane output to 627 million tons in the next seven years from 427 million tons currently, the nation’s Agriculture Minister Luis Carlos Guedes Pinto said in an interview with Bloomberg News today.
Lower prices have reduced profits on exports from India and cut earnings at Bajaj Hindusthan Ltd., the country’s biggest producer. Mills have exported 160,000 tons since the government ended a six-month ban in January, according to the Indian Sugar Mills Association. The association expects India to export 1 million tons this year.
India’s sugar exports will rise to 4 million tons next year, the Australian Bureau of Agricultural and Resource Economics, the nation’s commodity forecaster, predicted last week.
“Whatever is going out now is in small quantities,” said Kishor Shah, chief financial officer at Balrampur Chini Mills Ltd., the nation’s second-biggest producer. “Low global prices are not helping Indian exports.”
Bajaj Hindusthan had a second drop in quarterly profit on 29 January and Balrampur Chini reported a 52 % drop in net income in the quarter ended 31 December. First-quarter profit halved at Shree Renuka Sugars Ltd., the third biggest mill.
Shares of seven sugar mills, including Bajaj Hindusthan and Balrampur Chini, are among the 10 worst-performers on the S&P CNX 500 Index in the past year. The benchmark has gained 11 % in the same period.
India’s sugar cane production this year may reach a record 315.5 million tons, up 12 % from a year earlier, the farm ministry has said. That prompted the sugar association to raise its sugar production forecast for this year to 25 million tons from 24 million tons estimated in September.
“We raised the estimate last week because of higher output in Maharashtra,” S.L. Jain, director general at ISMA said in a phone interview yesterday. The western Indian state may produce 8 million tons this year, surpassing the northern Uttar Pradesh state as the nation’s biggest producer, Jain said.
The bumper output has raised pressure on the government to build stockpiles to prevent a glut, Agriculture Minister Sharad Pawar said on 20 February.
The government may spend Rs3.5 billion ($79 million) to form a 1.15 million ton reserve and distribute Rs4 billion as an export subsidy to help producers arrest drop in profits, a leading financial daily said on 12 March, citing people it didn’t identify. The relief measures will be announced before the end of this month, the report said.