Roundup on sugar for this week. Some recent developments -
1.Production and consumption numbers look balanced for FY17/18. But for the next 12 months there will be no import or export out of India, as per industry sources. Too early to say about 2018/19.
2.Government will try to ensure sugarcane farmers remain happy. For this, they will have to ensure sugar mills remain healthy. Government is already taking steps such as removal of export duty on sugar, removal of stock holding limits, etc.
As per Dhampur Sugars Q2 concall, the total cane price arrears in India was almost one-fifth of what it was two years back. So because sugar prices have been stable that’s why almost pan India cane price payments have been extremely prompt and that is one of the reasons also that we have seen that sugar which last year was produced 20.2 million tonnes is expected to go up to around 25 that is mainly due to rains and secondly due to prompt cane price payments. **He said they are very sure of the fact that high cane price is not the need of the hour. The need of the hour is timely payment of cane price.** Seeing that I do not believe there will be a very high increase if any next year.
Sugar prices will have to remain above 33/34 for this whole sugar chain to remain healthy in my opinion!
3.Acreage and Yield, as per Dhampur concall - Cane acreage this year in UP is up by 9%, which will improve further next year. The other thing which has happened is that because of the cane variety 238, the yield/acre is about 1.5 times. Acreage of variety 238 has gone up a lot but there is still a lot more room for it to go up. So with both the acreage and yield per acre, the cane crop will be higher in 2018 year also. Yield is crucial for both farmer and mill. 3 years back, average yield was 9.5, now it is 10.66.
Sugar mills want to increase no. of crushing days from 140-150 (3 years back) to 180-200 in order to improve productivity. With new crane variety and increased acreage, this is possible as crops are ready 10-15 days earlier than it used to be.
4.Moreover, ethanol production is on the rise, which will help all sugar mills. The government last month raised ethanol prices by 5 percent to 40.85 rupees ($0.6375) per lit before tax for the year that began Dec. 1. Indian sugar mills are set to more than double the supply of ethanol to fuel retailers for blending with gasoline in 2017/18, expecting a sharp rise in the local output of the sweetener. Ethanol manufactures and OMCs finalized supply contracts for a record 1.4 billion lit for FY17/18, compared with 665 million lit in FY16/17. Furthermore, more molasses availability and that too at much lower pricing point will lead to higher cogen, resulting in improved profitability.
5.On the other hand, increased production in India and Brazil would result in downward pressure on sugar prices.