 "Sugar will in Rs 3,300-3,900 range till April 2017: Smera Perspective")
However, Smera believes that this price point will fall further if, as expected, the monsoon remains healthy. Apart from India and other South Asian nations, sugarcane production has been very strong in Brazil and Latin American countries. Due to low Ethanol prices, Brazil has been using most of its sugarcane produce to manufacture sugar putting downward pressure on prices. The recent upward trend (although not substantial) in future contracts is not only a result of adverse conditions prevailing in India but is also due to the appreciation of the Brazilian Real (Vs $).
According to Smera perspective on Sugar, the currency will undoubtedly depreciate since the national economy is in contraction mode, thereby increasing export of sugar again. Furthermore, with Cuban trade restriction on the verge of being lifted, Cuban cane sugar will flood the market, cooling prices substantially.
"Getting back to the domestic market, sugarcane remains an attractive crop and in Maharashtra alone, areas under sugarcane cultivation have grown on an average rate of 40 per cent in the last five decades. Even in drought years, production of sugarcane (harvested) increased on an average rate of 6-7 per cent," said Smera.
In the September-April 2015-16 cycle, the production was roughly 26 million tons (just 2 million tons less than the previous year's) considering that the estimated annual demand in India is 25 million tons. Also, the rating agency believe that should monsoon be encouraging, farmers will cultivate sugarcane as their preferred crop since it offers better prices. The government is likely to take action once prices stabilise at the Rs 3,500 levels in order to offset rising production costs.