News Item in TOI, Mumbai Edition dt July 2, 2019
Sugar Output may Plunge 14% as Weak Rains Shrink Cane Acreage
Acreage in Maharashtra and Karnataka is estimated to be down by 30% and 16%
Our Bureau
Pune:
India’s sugar production in the 2019-20 crop year is likely to be 14.3% less than the previous year’s at 28.2 million tonnes, mainly due to the decline in acreage in Maharashtra and Karnataka, according to the Indian Sugar Mills Association (ISMA).
“Based on the satellite images procured in the latter part of June 2019, the total acreage under sugarcane in the country is estimated to be around 49.31 lakh hectares in 2019-20, which is over 10% lower than 2018-19 sugar season’s cane area of around 55.02 lakh hectares,” the industry body said in a press release issued on Monday.
The sugar crop year in India is from October 1 to September 30.
According to ISMA, Uttar Pradesh, the largest sugar producing state, is likely to see a 2% decrease in area under cane, while acreage in Maharashtra and Karnataka is likely to be down by about 30% and 16%, respectively. “Sugar production in UP in 2019-20 is estimated to be around 120 lakh tonnes (12 million tonnes), which is more or less at the same level of 118.23 lakh tonnes produced in 2018-19,” said ISMA. The fall in acreage in Maharashtra is mainly due to poor rainfall since September 2018, which has kept reservoir levels low and affected sowing of 15-month and 12-month crops. “As against the cane area of 11.5 lakh hectares in 2018-19 SS (sugar season), area is expected to decrease to 8.23 lakh hectares in 2019-20. Sugar production is, therefore, estimated to be about 70 lakh tonnes (7 million tonnes) in 2019-20, as against 107.19 lakh tonnes
(10.72 million tonnes) produced in 2018-19,” ISMA said. “Karnataka’s sugar production in 2018-19 is estimated to be around 35 lakh tonnes
(3.5 million tonnes), as against 43.65 lakh tonnes (4.365 million tonnes) expected to be produced in 2018-19,” ISMA said.
According to ISMA, India has produced about 32.809 million tonnes of sugar in the 2018-19 season till June 30, while total sugar production in 2018-19 is expected to be 32.9–32.95 million tonnes by September 30.
ISMA has estimated production of about 28.2 million tonnes of sugar in the season 2019-20, which is about 4.7 million tonnes lower than the current 2018-19 production of around 32.95 million tonnes, down 14.26%. “The opening stocks as on October 1, 2019 is expected to be an all-time high of around 14.5 million tonnes. As compared to a normative requirement of around 5 million tonnes on October 1 of any year as opening stocks, the industry is unnecessarily carrying about 9.5 million tonnes of sugar inventory,” said ISMA.
Disclosure: Invested
Is anyone tracking this stock. Lot of buying going on in this stock. Is the cycle turning.
@jitenp Can you please throw your views on this.
Few top of mind observations from dhampur concall Q2FY20:
- Molasses prices are @5000 rs/ton compared to 200rs/ton last year which affected ethanol division margins. No plans for procuring molasses from outside for the current FY.
- Red rot disease identified in sugarcane crop in UP is in starting stage and all mills are coordinating and putting efforts to contain in the bug [seems to be a major risk for UP based Sugar companies if it spreads].
- Sugar prices ranging around 33rs in Oct. Seems to be moving in upward direction.
- Dhampur completed contracting for its entire export quota by the concall date. No exports during Q2. I guess the exports would be spread out over the financial year (??). No seller as well as no plans to buy export quotas of other mills.
- Due to B heavy ethanol production, Dhampur got higher allocation to sell sugar in the domestic market.
- Branded sugar selling volumes are very low and the spending promotion is compensated by the higher pricing as of now (break even). Seems management is not going to pursue this aggressively by spending good money on branding.
- Due to power price reduction from 5 rs to 3rs, the EBIT will come down from 240 cr/yr to 170 cr/yr [yet to cross check the numbers]. This, it seems, because Dhampur might not purchase bagasse from outside for power production [I am not sure I heard this correct].
- Sugar inventories will be down by 10-15% by end of this financial year as per management, which will help in working capital debt reduction.
Overall, I believe, two risks played out in the stable earnings story of sugar companies 1) molasses price reversal 2) Power price reduction.
The next big risk is Brazil, Australia winning trade case against India, which would stir up a big storm in sugar sector. India may have to either deregulate/decrease sugar support price which is what is being desired by lot of economic advisors (which is bad for sugar cane farmer of course). If at all that happens, it would disincentivise the farmers from growing sugar cane [which is not good for mills either].
Disc: Invested & contemplating to sell or not
The above observations are from what I understood from the concall and could be inaccurate.
I understand red rot disease has spread in up sugar cane fields and can result in severe output loss in. Up could someone confirm the news as this could adversely affect up mills and favour south based mills . Sugar glut may dissappear but news has to be checked and confirmed
Today
Dalmia Sugar Up 18%
Magadh Sugar Up 15%
Dwarikesh Sugar Up 15%
Avadh Sugar Up 8%
Ugar Sugar Work Up 8%
KM Sugar Mills Up 8%
Uttam Sugar Up 8%
Is the Sugar Cycle Turning ?
The sugar prices are expected to remain stable even as production is expected to fall in the coming months, a report said. The rates may remain in the range of Rs 34 per kg to Rs 35 per kg as output is likely to decline by 21.5 per cent during sugar season 2019-20, [CARE Ratings] said in a report.
Sugar stocks on 7 Jan 2020
DALMIASUG +7%
MAGADSUGAR +5.15%
DWARKESH +8.19%
AVADHSUGAR +4.93%
UGARSUGAR +6.36%
KMSUGAR +17.44%
UTTAMSUGAR +5.85%
this may be a temporary up but in future there wont be much appreciation as the international sugar prices are expected to remain weak due to high global inventories.
one can have god view of a small report
ideally in cycle one must buy at high P/E it meaning when the denominator i.e Earning are Low this should be couple with a couple of BAD mansoon years and if one or two big plants shut down that will be SONE pe SUHAGA … but what I feel one must be sit on lines
Disc: This is not any recommendation to buy or sell or hold , I do not own any sugar stock I am not a sebi approved analyst one must due his own study or consult registered consultant
regards
Hello @jitenp, hope you are doing good .
Can you put some light on where are we in the sugar cycle ? As per yesterdays news from Business Standard, the production will fell short 20% to 26 MT (which is 3 yr low).
Would love to know your thoughts on that.
Regards,
Saurabh
After Two Years Of Surplus Sugar Production, The World Sugar Market Has Entered A Period Of Deficit, With The International Sugar Organisation (ISO) Talking About About A 55-Lt Dip For The 2019-20 (November-October) Crushing Season.
What will be the impact of Ethanol pricing due to sharp decrease in Crude Prices.
As per my limited understanding, Brazil would move higher sugarcane output towards Sugar production than ethanol. It only takes 1 day to change the output so I don’t feel at such depressed crude levels they will continue with their ethanol blending targets.
I’m assuming there would be plethora of supply globally due to Brazil and the expected deficit for sugar season21 would change to surplus unless something happens on crude.
That’s the reason sugar stocks are so beaten down. It’s suffering from double whammy of falling markets and falling crude!
Will the government change its Ethanol pricing due to the Current fall in Crude. Any idea at what price of Crude the mixing of Ethanol at current Pricing becomes un viable in India.
Your prediction was prophetic in the run up from Jan 2016 to July 2017. Many sugar stocks ran up tremendously again from June 2018 to mid 2019 and after a brief pause started climbing till early feb 2020 and finally dipping sharply till date. How do you assess this movement given that sugar cycles generally are longer cycles and not as close as we saw in 2017,2018 and 2019 ?
- Higher sugar exports appeared a major solution to the problem of surplus sugar inventory in India. However, weak global sugar consumption, disruption in international trade and fall in global sugar prices due to Covid-19 will limit the sugar exports from India.
- Weak export scenario is expected to restrict any major uptick in domestic sugar prices and is likely to keep them range bound. Moreover, a tepid demand from bulk consumers like restaurants, eateries, food processing units and ban on celebrations and gatherings will impact the domestic demand of sugar and thus prices.
The domestic wholesale sugar prices had averaged at Rs.34 per kg (y-o-y rise of 4.3%) during the period October 2019-March 2020.