INDIA: Drought to reduce sugar production to below consumption

Sugar Online Published: 02/12/2013, 7:34:39 AM

India's sugar production for the 2013/14 season is set to fall below consumption for the first time in four years as a water shortage trims acreage in three key states, according to Reuters.

The drop could boost global sugar prices as the world's top sugar consumer imports raw sugar to maintain stocks and to take advantage of lower prices in Brazil.

"Farmers in Maharashtra, Karnataka and Tamil Nadu are switching to other crops. If we look at prices, cane is attractive, but water is not available," said a Mumbai-based official with a global trading firm, who declined to be named.

Figures from the Indian Sugar Mills Association show that the western state of Maharashtra and southern Karnataka and Tamil Nadu are likely to produce 12.2 million tonnes, or more than half of India's total production, in the 2012/13 season, which ends on Sept. 30.

India, the world's biggest sugar producer after Brazil, is likely to produce a total of 24.3 million tonnes of sugar in the current year, compared with demand of about 23 million tonnes.

It would then need imports over the following season to maintain opening stock levels for the year starting Oct. 1, 2014, dealers said.

Though the country is likely to start the year starting October 2013 with stocks of 7.5 million tonnes, it would want to maintain these levels going into the next year.

After the 2009 drought sugar production fell sharply, forcing India to make big purchases from overseas markets, which pushed the price of raw sugar futures to 30-year highs.

"It is difficult to estimate sugar output for next year. It depends on the diversion of cane for fodder, monsoon rains and recovery rate," said the trading firm official, who declined to be named. "Right now, we can say around 20-21 million tonnes can be produced."

In 2012 state governments bought cane to offer cheaply or free as fodder when alternative supplies were short because of lack of rain. Cattle become the main source of income for farmers during drought years.

The fodder shortage is likely to rise between March and June this year, raising demand for mature cane as fodder.

"Total cane area in Maharashtra and Karnataka will be down 20 to 25% for next season," said Narendra Murkumbi, managing director of Shree Renuka Sugars, the country's biggest sugar refiner.

New plantation is down by nearly 50% in both states, Murkumbi said.

"Drought is affecting new plantation and it will even cut availability of the ratoon crop next season," D B Gavit, a director at the Maharashtra Sugar Commissioner's office, said.

The ratoon crop is the root stub of cane after the first harvest that remains in the ground for a second harvest. It usually accounts for more than a third of total cane production.

The water shortage in the central region of Maharashtra is so severe that people are struggling to secure drinking water, but the situation is better in the northern state of Uttar Pradesh.

"Uttar Pradesh will compensate for some of the production losses in Maharashtra and Karnataka. It is not facing a water shortage," said Kamal Jain, managing director of sugar brokerage Kamal Jain Trading Services.

Uttar Pradesh is expected to produce 8.1 million tonnes of sugar in 2012/13.

BRAZIL: Efficient cane production seen forcing Eastern Europeans out of bee

Sugar online: Published: 02/05/2013, 10:56:08 AM

Cane production costs in top sugar exporter Brazil have started to fall due to the prospect of a bounteous harvest and will force some of the least efficient beet growers, many of them in Eastern Europe, to switch out of sugar, according to Reuters.
Delegates at a major sugar industry conference in Dubai said sugar beet farmers can more easily move into alternative crops such as grains, while investment in cane planting is much more expensive.
The fall in costs will also improve the bottom line of financially strapped Brazilian mills, they said.
"The cost of production in Brazil had been rising significantly and this enabled other countries to compete," said Jonathan Kingsman, head of agriculture at news provider Platts and host of the Feb. 2-5 conference.
"As Brazilian industry recovers, the costs of production will fall due to rising production capacity. These other countries, which had increased sugar production, will have to compete with Brazil. Russia maybe can't; Ukraine maybe can't."
The Union of Russian Sugar Producers has said it expects the area planted in beets to drop by 8.4% next season.
Russia brought forward purchases of Brazilian raw sugar to take advantage of cheap offers before a possible increase in its import tariff on May 1, sources at two trade houses said.
Russia, which was the world's top raw sugar importer a decade ago, has been moving towards self-sufficiency in sugar in recent years, shielded by the rising production costs in Brazil, which has been the source of its imports.
Many Russian farmers now could switch from sugar beet to more remunerative wheat crops, several analysts said.
"In Russia, there could be a definite switch to wheat," Keith Flury, a senior soft commodities analyst with Rabobank, said before the conference.
"Russia might be able to realise good revenues from grains."
Russia is also a leading wheat exporter.
Global sugar futures have almost halved in price after reaching a peak of 36.08 U.S. cents a lb in February 2011. Wheat prices, meanwhile, are roughly in line with those paid two years ago.
Jonathan Drake, head of RCMA Sugar, said in an interview that the most efficient Russian growers would continue to produce beet.
The lower Brazilian production costs are not expected to have any impact on sugar production decisions in the European Union because of heavily protected prices in the bloc, which are well above global market levels, trade sources said.
Brazilian sugar production costs rose in recent years due to factors such as adverse weather, which cut cane throughput in mills, but this trend is now set to reverse as mills ramp up production of a huge harvest in 2013/14, delegates said.
Sugar mills in Brazil have substantial fixed costs and need to produce at near full capacity to keep their marginal costs to a minimum.
"The key for the next Brazilian crop will be the maximum productive capacity. I think we will be close to maximum productive capacity," said Jeremy Austin, managing director of trade house Sucden do Brasil.
"In theory that would mean a productive capacity of 600 to 620 million tonnes."
Several analysts have forecast that 2013/14 cane output in the centre-south of Brazil, the main growing area representing some 90% of the crop, will be around 580 million to 585 million tonnes, up from around 532 million in 2012/13.
Brazil's raw sugar production costs are set to fall to some 17-18 cents a lb from 20-22 currently as the volume of cane processed by the mills ratchets higher, delegates in Dubai said.
The falling costs of sugar production in Brazil will alleviate the pain of many mills, which have been struggling financially in recent years due to a lack of available cane to process, traders attending the conference said.
A panel of executives from Brazilian mills agreed that the fall in Brazilian production costs would help the bottom line of mills.
"The falling cost of production in Brazil will bring a sigh of relief to mills that have been struggling to make a profit," one senior London-based analyst said.
Toby Cohen, a director of London-based merchant Czarnikow, said in Dubai that, despite the fall in production costs, many mills would still face financial problems because the current sugar price was too low.

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Russia may export wheat to Brazil

An agreement on phytosanitary requirements that allow the import of wheat from Russia to Brazil will be signed by the Minister of Agriculture, Livestock and Supply, Mendes Ribeiro Filho, and the Minister of Agriculture of the Russian Federation, Nikolay Fedorov, on the 19th February in Brasília. Russian officials visit Brazil between the 18th and 20th of February.

According to the director of the Department of Plant Protection, Ministry of Agriculture, Livestock and Supply (MAPA), Cosam Coutinho, so they signed the agreement, wheat exports from Russia to Brazil will be released. "This negotiation between the two countries takes a few years now and the opening of trade to imports of wheat from Russia can supply a lack that Brazil has in relation to the product," he explained.

Coutinho also highlights that this is a good time because Brazil zeroed the rate of import wheat from any source until August 30, 2013, due to the risk of shortage in the market. This was announced during the last meeting of the Board of Trade (CAMEX), held on 05 February.

Cooperation - During the meeting of the Committee Agrarian Russia / Brazil, on February 18, also discussed the possibility of the two countries signed the protocol on cooperation for the supply of soybean meal from Brazil to Russia. This protocol is also part of the rounds of negotiations between the two countries and is in final discussion of technical talks.

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