Sugar output likely to miss forecast

Prices, which have dipped by 35%, may go up.

India, the world's second-biggest sugar producer, may make less of the sweetener than forecast by traders and millers because of delays in crushing cane, easing a glut that has slashed global prices.

Output may be a record 28.3 million metric tonnes in the year to September 30, 2008, from 28 million tonnes last year, Vinay Kumar, managing director of the National Federation of Cooperative Sugar Factories Ltd, said. That's less than the 30 million tonnes the group predicted in July.

Refined sugar prices have dropped 35 per cent in 18 months, making the sweetener the worst-performing agricultural commodity over that period. World output may exceed demand by 11.1 million tonnes this year, led by output of 33 million tonnes in India, the International Sugar Organisation has said.

"A delay in crushing in Maharashtra and Uttar Pradesh has caused production to drop 30 per cent in the two months ended November," Kumar said. "Production is unlikely to be higher than last year. We may see sugar prices moving up from June."

Cane harvests in Maharashtra, India's biggest sugar-producing state, were delayed two weeks by rainfall and mills in Uttar Pradesh refused to process the crop because of a price dispute with a provincial government.

Uttar Pradesh in October ordered sugar makers in the state to purchase sugar cane at above-market prices. The state asked millers including Bajaj Hindusthan and Balrampur Chini Mills, the nation's biggest, to pay growers as much as Rs 130 rupees ($3.30) for 100 kg. The price was reduced to Rs 110 by a court in the state after mills challenged the order.

'Huge stocks'
Balrampur Chini, the nation's second-largest producer, last month said it expects to lose Rs 3.5 on every kg of sugar output in the state because of the directive. The company reported its second quarterly loss for the three months ended September 30. Bajaj, which posted a loss in the June quarter, is yet to announce earnings for the most recent period.

"Indian producers are still grappling with huge stocks and rising cost of production," said Vikram Suryavanshi, an analyst at Karvy Stock Broking. "It will be another 18 months before things turn around for them."

Shares of Bajaj Hindusthan have risen 1 per cent this year, lagging behind the 45 per cent advance in India's benchmark Sensitive stock index. Balrampur Chini has climbed 20 per cent in the period, according to Bloomberg data.

Refined sugar traded on London's Euronext.liffe has slumped since reaching a peak $497 a tonne in May last year as the world's biggest producers raised output and widened a global glut.

White sugar futures for March delivery rose 0.8 per cent to $290.30 a tonne yesterday in London. Raw sugar futures for March delivery rose 1.1 per cent to 9.85 cents a pound yesterday on ICE Futures US, formerly known as the New York Board of Trade. India's sugar production may decline to 22 million tonnes in the year to September 2009 as farmers switch to more profitable crops such as wheat and oilseeds, National Federation's Kumar said.

The forecast echoes that of Narendra Murkumbi, the managing director of Shree Renuka Sugars, India's biggest refiner. About a fifth of the country's sugar cane acres may be planted with wheat in the year starting October 2008, he said on October 23.

Domestic sugar prices have declined 25 per cent in the past year and wheat rose to a record in September. A record harvest may lead to a doubling in overseas sales to 3 million tonnes this year, Kumar said. "Some people are talking of as much as 4 million but lack of port related infrastructure will affect shipments," he said. "Three million tonnes is a certainty."

The Indian Sugar Exim Corporation, an industry-funded trader, has already won contracts to export 700,000 tonnes of raw sugar, while private mills in southern India were also shipping the commodity, he said.