Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains!

Stock Opportunities
1483

@james_kerala

Thanks for putting me on the SPOT :grinning:
Disc: I am invested. My views are biased. I am NOT the best person to answer this query.

I am observing, questioning & learning from sugar specialists like Aman Sonthalia presentation at VP (everyone must DIGEST this first to come on the same page), and recording data points as we experience first-hand. So I will make an attempt. But beware, there could be mistakes in my understanding and/or data points.

Would request sugar veterans like @Mehnazfatima and others to step in, correct as necessary, and educate us more.

A. Primary factor is Demand-Supply imbalance. When that is there prices rise, money is there to be made
B. Where Money is there to be made, depends on 3 aspects
a) Recovery Rate b) Inventory (low cost or not ) c) Crushing (in the district/near the mills, may vary across the state)
C. Highest Profits are likely to be made by Mill companies whose Production cost is lower - due to a) higher Recovery b) lower steam consumption (bagasse saving/reselling adds to bottomline c) more sugarcane availability/more crushing leading to higher economies of scale d) Low cost inventory sale (which probably gets liquidated in 2 months at start of SS like Sep and Oct (when ther is no crushing)

Having said that, let’s come to the specific query - India Sugar Shortfall SS23-24 impact for UP based MIlls

  1. Sugar price generally falls at season start (Nov/Dec) when there is adequate/abundant production. This is because sugar production is over in 5-6 months, but sales are spread out over 12 months. During production mill owners have to pay out farmers, there is some liquidity crunch, so generally prices are kept low during this time.

  2. This year there is shortfall not only in Maharashtra but also Karnataka and TN. MH and KA the shortfall is like 40% lower this year, and TN is like 20%. UP production will be marginally higher this year. After UP, MH is the largest producer, and then KA. (will try to get us state-wise production figures for SS 22-23 and SS23-24E, soon)

  3. ISMA is saying Production will be around 290 LT in SS 23-24 (matching yearly consumption pattern). Ground checks are telling us it will be more like 260 LT, i.e. a shortfall of 30 LT

  4. During Crushing period of SS 22-23 (last year), sugar price was 35.50/kg
    Right now it is Rs 40-41/kg which indicates there is shortfall ahead

  5. With this kind of shortfall, sugar price probably will NOT fall at season start and stay elevated for the season. Even if it falls by say Rs 1/ or 2/- now, it will be more than made up when CRUSHING gets over early in SS 23-24 (likely by Rs 5/-, so net Rs 3/). This is because

  6. Crushing data points

  • MH and KN - crushing continued till May/June in SS 21-22, SS 22-23 continued till Apr end,
  • SS 23-24 KN likely to be over by mid Feb 2024; MH by mid March 2024
    The moment crushing gets over - India production figures will be public, and if there is shortfall as expected, that will affect prices internationally, and domestically

  1. If indeed there is shortfall of 30 LT, then government will have to import to meet the demand. Prices internationally are at 60-62/- per kg; domestically it is at 40-41/- per kg; Sugar Specialists are saying 40/kg can go upto 45/- kg

  2. The sugar specialists are also saying Sugar Price will probably NOT fall from these levels for 2 years now, because

  3. Next year SS 24-25 a) El Nino is predicted to be more severe b) Dams don’t have much water, water table is drastically down c) Planting to be done from Dec to May - MH and KN have less water

  4. Sugarcane plantation in MH/KA is done of 3 types - 18 months crop, 12 months crop, and 9 months; 18 months “Adsali” plantation - for SS 24-25 season was to happen in July/Aug 2023 - when there was no water - so minimal planting; 12 months crop - there is less water; 9 months crop - less water; SS 24-25 sugar season will see big shortfalls

  5. Sugar Mills in States producing more will make more, thus UP mills benefit

  6. Inventory highest in Uttam and Avadh Sugar, and then Triveni Engg (inventory being sold now)

  7. SAP (for Sugarcane in UP) likely to be raised by Rs 25/- per quintal which will impact cost of production by ~2.25 Rs/kg which may be easily passed on to the consumer

43 Likes