Sugar mill delivery prices have risen by nearly 100% over a year ago, and are up nearly 40% since October. In the 2009-10 sugar marketing season (Oct-Sep), India’s sugar production is estimated to improve a bit over the previous year’s level of 15 million tonnes (mt), but still fall short of the 23 mt needed to meet domestic consumption. The International Sugar Organisation has estimated sugar production to increase by 4.5% to about 160 mt, about 7 mt short of demand. The full effect of this deficit is being felt on sugar prices.

The monsoon’s effect cannot be predicted, however. A tight market will put a floor under sugar prices but factors such as government intervention and forecasts on next year’s output will start reflecting in prices. That could mean more volatility in sugar prices and shares of sugar companies in fiscal 2011. Sugar mills will be sitting on sugar inventory produced by purchasing cane at much higher prices than in the previous year, so a moderation in prices will make investors nervous.

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