India Sugar... We never change

In my last review I was quite optimistic about the change and progress Indian sugar industry was experiencing, but sadly it was very short lived and today when I look at the numbers it reminds me of same story of last booms and busts every 3-5 years..... The way India's production numbers are falling outsiders are making joke of it and saying that "we never change". Ironically during 2008/09, India was indeed an exporter of sugar, about 5 million tonnes of sugar were exported, including 2.9 million tonnes of raw sugar. Now this year we are Net Importer and have already contracted 1.5mmt primarily from Brazil. I estimate that we should close this season with about 17.5mmt with consumption of about 23mmt.

As we talk to states MH is down about 45% to 5.1mmt, UP at about 4.8mmt and rest others also declining in more or less same %age.

Sugarcane farmers have been paid really well this season which will prompt them to grow more cane in future and hence 2009/10 looks to be a better years in terms of availability.

Imports have already started (Early contracts were made @ $310-340 per mt) which today looks a real good buy. World market reacted to Indian demand and gone up sharply to touch $400 per mt recently.

I personally feel very sad about the way we operate such critical industry to take some political mileage and capture vote banks. Rather there is a strong need to empower farmers to grow more crops not only sugarcane but more of wheat, soybean, cotton etc to ensure that our 70% population, which lives in village and is depending on agriculture, propels the economic growth to take us through this recession...

India Statewise Sugar Scenario 2008-09

State-wise Scenario:

We will keep our focus on 2 most important states UP and Maharashtra. Uttar Pradesh sugar mills are as usual knocking the doors of the court for granting some relief in SAP (State Advised Prices) after the announcement of Rs. 140/qntl SAP for cane. However few mills have started crushing and rest will follow soon. This season Sugar production is likely to fall by about 30% to 6.1mmt from 8.2mmt last season primarily due to lower crop of sugarcane and delayed crushing. Maharashtra is likely to face shortage of cane this season as crop area has dropped by about 35% hence will immediately impact sugar production. This season MH is likely to produce about 6.3mmt i.e. 36% fall over last season. Rest of the country will also face the cane shortage this season and hence will directly result in lower sugar production and normal crushing season, likely to end by April end.

Silver... Invest for next 5 year

Silver's price history Silver remains historically undervalued. Despite the incredibly bullish fundamentals outlined silver has so far underperformed nearly all the other commodities. Silver has gone from below $5 to some $16 and is up some 190% in the last 7 years.
This seems like a lot but when compared to other commodities and metals it is very little:
Oil is up from $10 to $63 or 600% and more than 6 fold.
Zinc from $.35 to a high of $2.00,. now $1.50/lb or nearly 5 fold.
Copper, from $.75 to a high of $4.00, now $3.58/lb or nearly 5 fold.
Lead from $.20 to $.90/lb or nearly 5 fold.
Nickel from $3 to $22/lb or more than 7 fold.
Indium, Molybdenum, Selenium, Cobalt are all up 1000% or 10 fold and more.
Uranium is up a phenomenal 1300% or 13 fold.
Many commodities are up between 5 and 13 fold. Silver is not even up 3 fold. If silver were to catch up with these other less rare and less precious metals, it would have to increase in value by some 500%. From the bottom at some $5/oz in 2001, that would result in silver being valued $25.
Silver reached $50 briefly in 1980 when just one billionaire Bunker Hunt (one of a handful of billionaires in the 1970’s) attempted to corner the silver market causing the price to surge (in conjunction with many investors seeking to hedge themselves from the stagflationary 1970’s). A lot of technical orientated analysts, investors and hedge funds are looking at this figure and as nearly all the other asset classes and commodities are all at near all time records there is every reason that silver will do likewise in the coming years.
Silver is priced at some $16/oz today. The average price of silver in 1979 and 1980 was $21.80/oz and $16.39/oz respectively. In today’s dollars and adjusted for inflation that would equate to an inflation adjusted average price of some $60 and $44. It is for this reason that we believe silver will be valued at over $50 in the next 3 to 5 years.

Water... commodity of future

My personal belief that one day Water will be traded like the way Oil is traded today. Excerpts from article recently ported on web:

At first glance a map of the world doesn’t exactly scream “water shortage!” After all most of the world’s surface is covered in it. The problem is that only 2.5% of all the world’s water is fit for human consumption – and around two-thirds of that is locked away in icecaps and glaciers. This percentage has been fixed for as long as scientists have been researching the matter and is not about to change. Water is not like other commodities – there won’t be a ‘eureka’ moment where new reserves are suddenly discovered. And unlike other commodities, there is no substitute for water and just about everything and everyone relies on it. By the time you’ve got up, showered and had breakfast, for example, you will have consumed 40% of the 135 ltrs without giving it a second thought.

Investing in Water:

Although there is no known substitute for water, some of the wealthier Middle Eastern countries with the harshest desert climates have grappled with what seems an obvious solution – turn the sea into something that you can drink, or at the very least wash in. Desalination is expensive, but is popular in places such as Israel (15% of the country’s water is derived this way), Dubai, Malta and the Canaries. The filtration process is not without problems. There’s the huge amounts of power required to drive the pumps, not to mention the waste produced as a by-product; according to Heather Cooley from the Pacific Institute, typically it takes 100 million gallons of seawater to produce 50 million gallons of desalinated water. The other 50 million gallons of heavily salted brine is dumped back into the ocean. This, along with the high cost of establishing each plant, has been one of the main barriers to the process being adopted outside of the Middle East.

India... failing to export sugar....

India may sell less of sugar abroad than previously estimated because of higher domestic prices, supporting a globally rally in the commodity, according to Bloomberg. Exports may total 3 million metric tonnes in the season ending Sept. 30, SL Jain, director general of the Indian Sugar Mills Association said in an interview in Mumbai. That's less than 3.5 million tonnes the group orecast in February. Prices in Maharashtra, the nation's biggest sugar-producing state, have climbed almost 40% to Rs1,250 (US$31) per 100 kilograms on average since the season started. Prices in Uttar Pradesh have risen 25% in the period, Jain said. It is more profitable now to sell sugar locally,” he said. “A lot of factories have defaulted” on their export contracts because of rising domestic prices. Mills have sold 2.1 million tonnes of sugar since Oct. 1, including 1.3 million tonnes of raw sugar, he said. The country shipped only 1.7 million tonnes last year because of a ban on exports that was lifted in January 2007.

LMC Sees India importing sugar

India, a key supplier of raws, may have to import sugar by 2010/11, a leading global consultancy, while a domestic brokerage said imports would happen sooner as domestic output drops. Refineries around the world, especially in the Middle East started viewing India as a dependable supplier of raws as the country, saddle with huge domestic stocks, entered the raw sugar export market in June 2007, when it sold 500,000 tons. According to trade sources, after a record output of 28.4 million tons in the crop year to September 2007, output in India is likely to fall in the next two to three years as farmers shift from sugarcane to more profitable grains. Mr. Gareth Forber, Head of sugar research at LMC International Ltd has stated that India may have to import sugar in 2010/11 after exporting less in the next two seasons. He said India’s exports were expected to fall to about 2.5 million tons next crop year, one million tons lower than the estimated 3.5 million tons this year. He added that India can manage to export some sugar in 2009/10 but may have to import in 2010/11.

Sugar end stock inches up

FO Licht sees world sugar ending stocks for 2007/08 at86.22 million metric tonnes raw value, up from the November estimate of 84.89million tonnes, according to Dow Jones. FO Licht sees world sugar ending stocks for 2007/08 at86.22 million metric tonnes raw value, up from the November estimate of 84.89million tonnes, according to Dow Jones. Stock levels have grown due to a high stocks to consumption ratio of 55.8%,compared with 43.8% in 2005/06, the firm said. However, world sugar production in 2007/08 is forecast slightly lower at168.87 million tonnes, compared with the November estimate of 169.19 million tonnes, the firm said. Looking ahead to the 2008/09 crop, FO Licht suggests early production estimates may have been too conservative. "If prices stay high ... many exporters may have second thoughts on reducing production while Brazilian millers may be tempted to channel more cane into sugar production at the expense of ethanol, swamping the market with unexpected supplies," it said.

Sugar MARCHing fast...

March '08, dream month for Miller, traders and speculators...

Sugar has been trading firm on the back of brisk domestic buying ahead of the festival season coupled with speculative buying in futures. Traders said higher demand at the beginning of the month coupled with high global prices was offsetting the impact of a higher domestic sale quota for March at 1.6 million tonnes. This year (Oct-Sept) sugar production is likely to total 25.4 million, down from 28 million tonnes the previous year due to delays in crushing operations. Sugar also received a boost from increased demand from soft drinks and ice-cream manufacturers. Many millers are also holding back stocks in expectation of further rise in prices. So far, contracts have been signed for exporting around 3 million tonnes of sugar, with around 1.4 million tonnes already shipped. In Delhi, sugar ready M grade prices increased to Rs 1650-1,690/quintal. Similarly, mill delivery M and S grade prices also quoted higher at Rs 1,430-1,520/ quintal and Rs 1,410-1,500/ quintal, respectively. NCDEX contracts also followed same trend during week but lost out later. Maharashtra, largest producer has moved up most sharply banking on fresh domestic demand and demand from exporters. However its likely that after NCDEX March expiry and so called demand of Holi is over, market may see a sharp correction, primarily in secondary market, where traders and agents have choked up to their head. Overall market may have some more heat left in it but is likely to turn to red in next half of the month.

market sentiments

Today I was talking to few traders/ brokers and got to understand how same thing is judged so differently by different people.... short term bull run of January, which faded in Feb is again knocking doors... Today UP pvt mill jacked up prices by Rs. 300 per mts. Maharashtra mill's first tenders of March were mostly sold out at premium. Sahadri went @ 13400, warna @ 13580 etc etc... NCDEX is moving up very sharply, following NYBOT & LIFFE.....

Traditionally Feb to June period is high consumption period and offtake of Sugar increases considerably, so firs week is expected to fetch good premium as most institutions want to book there monthly requirement. At the same time production forecast also playing some role in framing market sentiments. Till date no one is very sure how much sugar India gonna produce this season, no clue when MH & UP mills will stop crushing, How much cane will be left un-crushed and how much cane have been sown in for next season.... till the time these doubts get some clarity market movement will continue to see same volatility by defying all fundamentals... Happy Trading....attached is Net position on NYBOT.. more people are bullish as of now...

China - Opportunity for Indian Sugar

China is expected to produce 2.65% more sugar in 2007- 08, after a record of 12.6 million tonnes in 2006-07. Total production is forecasted at 12.95 million tonnes. Total consumption is expected to rise by 7.1% to 12.85 million tonnes. High corn prices forced the food and beverage industry back to natural sugar instead of corn sweetener, which had captured market share in previous years. Chinese sugar consumption is growing rapidly this year, particularly from the food and soft-drink industries. Record high production domestically has reduced the imports of the commodity. Imports in 2007-08 are estimated to drop by 10.5% to 8, 50, 000 tonnes. Of the total imports likely to take place in 2007-08, Chinese importers for the first time have braved maximum tariffs to buy cheap Indian Sugar. Chinese buyers have bought around 1 lakh tonnes of Indian at a tariff rate of 50%, assessed on imports that do not fall within the tariff rate quotas (TRQ) system agreed when China joined the WTO. Normally, Chinese mills and traders do not import unless they hold the quotas for the lower tariff rate of 15%. This year, Beijing only granted 30% of its 1.945 million tonnes of TRQs to private companies. Many of the remaining quotas, granted to state-owned firms, have yet to be issued. Two cargoes of Indian white sugar totaling 60000 tonnes have already been imported under the higher tariff being offered at 3,950 Yuan ($525) per tonne in the Northern port city of Tianjin. The price has been cheaper than sugar from the top producing region, Guangxi, offered at 4,040 Yuan per tonne. The recent freezing temperature in the Guangxi region, China's major sugar growing region, may see an overall drop in china’s sugar production by about 5 lakh tonnes this year. This has also led into a price rally on the international bourses off lately sending the contract prices on multiple month high levels.