No hike in Uttar Pradesh sugar cane price a blessing
The Uttar Pradesh government is said to have advised sugar price in the state to remain at ₹315 per quintal in the current sugar season
Sugar mill owners in Uttar Pradesh will not have to worry about paying more for sugar cane in the current season. The state government has taken the sensible step to keep the state advised price (SAP) for cane unchanged. The state and central governments have patched together a series of incentives to ensure that farmers get their arrears and mills are able to stay afloat. These incentives vary from soft loans, limits on sugar stocks, export incentives and, in the case of ethanol, minimum blending requirements and fixing of prices.
An increase in cane prices would have upset the current delicate balance achieved in managing the interests of both farmers and mills. The SAP for sugar in Uttar Pradesh will remain at ₹315 per quintal in the current sugar season, according to news reports. The sugar season starts on 1 October.
This, however, does not mean that all is well for sugar mills. On the brighter side, the excess supply in sugar in the domestic market has eased off, given that dry weather and pest infestation have affected the crop in major sugar-growing states. This will bring down the surplus, the extent of which will become clearer in the months ahead. Still, there is enough sugar in the market due to previous surplus seasons.
But recent news reports indicate softer trends in domestic sugar prices after the peak festival season has ended. Since global sugar prices have remained relatively low, there is less interest in exports. What’s more, lower output forecast for domestic sugar is raising the possibility of higher local prices. That’s probably leading to some incentive to hold back stocks from the export market, in the hope of earning more in the domestic market when prices move up.
But there could be some other reasons for lower prices, too. The reversal in the rupee depreciation, with the USD/INR rate going below ₹70 now, means exports will earn less in rupee terms. It also lowers the landed cost of imports.
The sharp fall in crude oil prices is another concern. When the government fixed higher prices for procuring ethanol, crude oil prices had shot through the roof. Therefore, those revisions in prices seemed very reasonable. If crude oil prices stay low, then it could put a question mark on ethanol pricing. The oil marketing companies may push back, saying lower oil prices also call for a revision in ethanol rates. It’s too early to take a call on the impact, but this is a risk that bears watching.
In the near term, the more important factor is how sugar prices behave. A firm uptrend is what is needed for mills to earn good profits. The extent to which sugar output falls from the initial forecast is another factor to watch out for. Shares of Uttar Pradesh-based sugar mills have been declining since mid-November, but are still higher than the levels of early-September.
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