sugar - to export or not to ???

NYBOT 11.50 cents per pound = US$254 per mt

Freight from Brazil to Middle East = US$ 95 per mt

Freight from India WC to Middle East = US$ 35 per mt

Discount of Indian raws = US$ 25 per mt

India's locational advantage = US$ 35 per mt

Mathematics say that Middle East must buy only from India, but it isn't exactly happening. Let me try and get some rationale behind this :

1. Non availability of containers and rakes for movement

2. Uncertainty over India's production which is resulting is speculative bull run in recent weeks.

3. Today it makes sense to sell in domestic market.

4. Operational/ procedural hurdles.

5 Lack of awareness and knowledge about international market and international trade.

whatever said and done, today India is lacking golden opportunity to establish itself as a reliable supplier. If India is able to do that then it can be a win-win situation for all be it farmer, miller, trader or even Govt. Till the time we attain that we'll continue to struggle with a cycle of glut to deficiency and keep burdening farmers with unknown future.

Sugar - The Week That Was

The zoom in domestic sugar prices started with the announcement made by the farm minister on lower production estimates for 2007-08, followed by the High court’s exemption to U.P. mills from paying the Rs 110 per quintal interim price fixed by the Lucknow Bench of the same court for cane bought during the current 2007-08 season (October-September). The mills would, therefore now be required to pay only the statutory minimum price of Rs 85-90 per quintal fixed by the Centre for the 2007-08 season. Though the same has been altered later as Supreme Court has put a stay on HC’s order which means that the Mills may for now have no option but to pay the SAP of Rs 125-130 per quintal fixed for the 2007-08 season as well. Besides, there are news that Indian sugar exports are getting delayed due to a shortage of trucks and rail wagons for transportation to ports, resulting from a surge in exports of various commodities. This is the time which Indian exporters of sugar had been waiting for past couple of months where international prices are touching multiple months’ record high and if the above situation continues to persist will hamper down the positive sentiment.

International sugar prices kept zooming to multiple months’ record high throughout the past trading week to end with a sharp correction on the last trading day. Nybot raw sugar March contract fell 0.46 cent or by 3.6 percent to end at 11.99 cents per lb, dealing from 11.88 to 12.95 cents. On Liffe white sugar March contract rose to $10.00 to a peak of $361.00 per tonne, the highest level for the front month since December 2006, but ended $6.00 lower at $345.00. Indian Ncdex sugar futures continued trading on the bull side. In Spot at Vashi mandi both Sugar M and Sugar S prices opened the week in the range of Rs.1450-1540 p.q. and Rs.1400-1436 p.q. Surge in local buying led to a upside rally in spot prices also and both Sugar M and Sugar S closed in the range of Rs. 1456-1540 p.q. and Rs.1400-1471 p.q.

Taking into consideration the Bull Run in sugar prices across the globe got strengthened even more on the news of lower Indian sugar output for 2007-08 which had been weighting heavily on the international markets for quiet some time now. India is likely to produce 26 million tonnes of sugar in the year to September 2008, nearly 12 percent less than earlier forecasts due to lower yield from sugarcane. A record sugar output of 28.4 million tonnes last year sent prices
into a freefall. Mills swamped with a glut and were hit by a long spell of low prices and also tried to export the sweetener at zero profit to trim domestic stocks. Heavy rains in the western state of Maharashtra and a dispute over prices paid to cane farmers in the northern state of Uttar Pradesh resulted into delayed crushing.

sugar prices to move upward in 2008

this news article talks about upward movement in sugar which I feel can only possible if funds pour in money in anticipation of shortfall in production from 2008-09 onward. I hope that actually happens b'se that will regenerate the interest of many traders and fund managers back in this commodity, making Sugar one great place to judge one's trading skills.

Maize, sugar and cotton may gain the most among agricultural commodities in 2008 because of a shortage of farmland, says Diapason Commodities Management SA, the Swiss-based fund manager overseeing US$75 billion, according to Bloomberg. “We're seeing a war for acreage right now,” Stephan Wrobel, chief executive officer of Diapason, said in a telephone interview from London. These commodities have just been through corrections and the catalysts for change are now appearing.” He declined to forecast prices. Sugar, the second-worst performing commodity this year after orange juice, has plunged 17% because of a glut in world supplies. Maize is down 6.3% from a 10-year high in February, while cotton has dropped 3.4% this year. Standard & Poor's GSCI Agriculture Index has advanced 33% this year as wheat rose to a record and soybeans climbed toa 34-year high. Droughts in wheat producing nations hurt crops, while farmers cut soybean plantations to sow maize. Rising demand from emerging economies such as China and India and worsening supply constraints will help buoy agriculture prices in the next several years, Wrobel said. Pension funds and other money managers still have limited investments in commodities, he said.Commodities should make up 5% to 10% of an investor's holdings, compared with about 1% to 3% now, he said. “The shakeout following the subprime mess is making people realize that their commodity allocations are still pretty low,” Wrobel said.

sugar india

Spot sugar prices improved at the major cash markets on increased demand from bulk consumers and stockists amid a fall in supply. The govt.’s move to extend the sugar export subsidy for sugar mills till 2009 has given a reason to smile. India has exported 2.5 mln tons of sugar since April and is likely to sell 3 mln tons this year and almost half of it would be raws. Increasing demand from Bangladesh and Sri Lanka will help in easing India’s glut situation. Government has released 41 lakh tonnes of non-levy (free sale) sugar for the quarter January-March 2008. On the domestic front, the total production in the Oct-Sept crushing season has been lowered to around 27.5–28 mln tons as against 30 mln tons earlier. This comes as a relief to the sugar industry. World Sugar demand will outstrip production in 2008-09, leaving a 1.6 mln deficit as compared to earlier estimates of a surplus. Farmers would switch to more remunerative crops leading to a fall in sugarcane acreage. Sugar output may decline by 18% on year to 23.4 mln tons in 2008-09, as per Morgan Stanley forecast. Sugar prices are likely to rise further in the coming months but may take some more time to overcome the glut situation.

sugar prices in India

India's sugar prices have gone up substantially over last fortnight. However this seems surprising but there are some logical reasons to justify these unexpected moves. But before that a brief on price changes from last week of December to till date:

North Ex-mill M Grade: 1360 ---> 1460 (+7.5%)
West Ex-mill M Grade: 1250 ---> 1360 (+8.8%)
South Ex-mill S Grade: 1220 ---> 1375 (+12.7%)

Well this move itself explains a bit about the recent hikes in the prices.

A) Pipe-line was empty: Delayed crushing in UP resulted in excess flow of sugar from Maharashtra and buyers were going hand to mouth. Untimed rains in TN and southern Andhra delayed crushing resulted in wiping of stocks at mill level.
B) Raw Sugar demand: India (Inexperienced Indian mills) has committed huge quantities of raw sugar exports this season, which they are producing at the cost of plantation white sugar. Most of Maharashtra and Southern mill used their 1st month’s capacities in producing raw sugar resulted in fresh white sugar deficit.
C) Increased Demand: Due to coming festivals like Pongal in south and Sakranti in north & west resulted in fresh demand in already deficient market, resulting in buying happening at even higher levels as well.
D) Production estimates: Well from 33 mmt to 30 mmt to 28 mmt to now 26.5 mmt. These are not official figure but are the figures going around in the market. India has produced about 6 mmt against 7.4 mmt during Oct-Dec last year.
E) International market: Not directly but to some extent rising international sugar prices have boosted sentiments at our home as well. Crude is hovering at $100, pushing world to consume more of bio-fuel, which may push brazil to use more cane for ethanol at the cost of sugar.

Uncertainty in the market gave birth to many rumours, ranging from huge drop in production to excess outflow of sugar through export, low carry over stock etc etc. . .

At the end of the day we all know that India has excess sugar from last year and we will produce more than what we consume this season as well so there is no fundamental reason as to why prices will just go northward. However these upswings are rather better opportunities to short sell on NCDEX may-June contract.