Sugar Sales From India Seen Sustained Next Year on Inventory

Apr 10, 2014 7:37 am ET

(Updates prices in fifth paragraph.)

April 10 (Bloomberg) -- India, the world’s biggest sugar producer after Brazil, will continue to export next year as stockpiles are higher than necessary and as state payments spur sales, according to the country’s millers.

Shipments will probably be 1.5 million metric tons to 2.5 million tons in the year starting Oct. 1, from about 2 million tons this season, said Abinash Verma, director general of the Indian Sugar Mills Association. While inventories of 7.5 million tons on Oct. 1 will be lower than 9.3 million tons a year earlier, the country will still have sufficient reserves to export, he said in an interview in New Delhi.

That may help alleviate a shortage in global supplies as banks from Macquarie Group Ltd. to Standard Chartered Plc predict the first deficit in five years amid dry weather in Brazil and Australia. Futures traded in New York climbed last month to the highest level since October. Shipments from India may reach 2.5 million tons this season because of a government subsidy of 3,300 rupees ($55) a ton, says Morgan Stanley.

“Indications are next year’s crop should be similar to the crop we have in the current season,” Verma said on April 7. If that happens, “production and consumption should match next year, give or take 1 million tons,” he said. “India will be in a comfortable position to look at the export market.”

Output will total 23.8 million tons in the 12 months ending Sept. 30, the lowest level in four years, compared with 25.1 million tons a year earlier after rains cut yields, the association said March 6. Futures rose 7.6 percent this year to 17.66 cents a pound in New York. Prices on the National Commodity and Derivatives Exchange in Mumbai fell as much as 1.2 percent today to the lowest level since March 26.

Ample Reserves

The country has no need for inventories to meet more than two months of demand at the start of the season as supply from the new crop arrives by the end of November, Verma said. The opening balance should be 4.5 million tons to 5 million tons at most, he said. The 7.5 million tons he estimates for Oct. 1 would be the second highest in six years, association data show.

Some 800,000 tons of the 2 million tons shipped this season will be sold with the help of incentive payments, he said. Even if the country ships as much as 3 million tons next year, it wouldn’t use the full quota of 4 million tons available under the program, he said.

Production may be higher than the mills estimate. Output will probably increase 5 percent to 25 million tons next year as the subsidy and abundant dam water boost planting, the National Federation of Cooperative Sugar Factories Ltd. said last month. The crop may climb to 24.1 million tons, according to Bennett Meier, a Morgan Stanley analyst.

Cane Profitable

The cane crop will probably not be hurt in “a big way” by an El Nino this year as much of the area is irrigated, Verma said. “The impact will not be massive, it will not wash off the crop, it might reduce productivity by a slight number,” he said. If reservoir water runs dry, it would probably reduce sowing for the crop in the following year, he said.

The event, which parches parts of Australia and Asia, is set to develop in the next few months as the Pacific Ocean warms, according to Australia’s Bureau of Meteorology. The chances of it happening in the southern hemisphere winter are more than 70 percent, it said on its website April 8.

Farmers in India earn more from planting sugar cane than from alternative crops such as wheat, rice, cotton, soybeans or turmeric, Verma said. They get 75,000 rupees for a hectare of cane compared with 45,000 rupees for wheat or rice, he said.