Following a series of healthy fundamental factors, sugar prices in futures and spot market have witnessed an escalation since the first week of June. Prices tested a two-and-a-half-year high last month.
Futures prices on the National Commodities and Derivatives Exchanges (NCDEX) climbed from Rs 2,800 a quintal level in June to Rs 3,600 levels by mid-August, a surge of over 25 per cent. Domestic retail prices, too, mounted to Rs 40 a kg from Rs 30 during this period. However, prices somewhat cooled down after a few measures taken by the Government.
Expectations of fall in production owing to deficient monsoon in key-growing areas and strong overseas demand influenced domestic prices. According to the India Meteorological Department forecast, monsoon is likely to be 85 per cent below the long-period average this year.
Scarcity of water probably affected sugarcane in Maharashtra, Karnataka and Gujarat. These States have already reported to the Government about shortage in output of sugarcane this season due to scanty rainfalls. Meanwhile, according to reports, an anticipated higher production in Uttar Pradesh and Tamil Nadu is likely to compensate the shortage in production.
The drought-like situation may have an adverse affect on kharif and rabi crops but ongoing monsoon in a few States are supportive for sugarcane leading to higher output.
Festive-based demand is another factor in boosting prices. Domestically, August had been packed with several festivals. Festivals such as Janmashtami, Rakshabhandan and Eid were celebrated during this month. Increased consumption owing to these festivities also supported bullish sentiments.
The Centre has taken multiple steps to curb the surging prices including releasing additional open sale quota sugar and plans to drop the import duty. The Centre has released four lakh tonnes in the open market for the current quarter ending September taking the total non-levy supply of 5.17 million tonnes (mt).
It is the third time this quarter that the Government has extended additional open sale quota with an aim to check the price rise. Increased domestic supplies possibly curbed local prices. The Centre is also considering dropping the 10 per cent import duty on sugar to relax the prices.
AMPLE TO MEET DEMAND
According to Union Food Minister K.V. Thomas, sugar production is sufficient to meet the domestic demand. He says for the current marketing year October 2011 to September 2012, 26 mt of sugar is being expected against 22 mt in the previous year.
India exported 1.35 million tonnes of sugar in the first half of the 2011-12 marketing period. However, according to the Indian Sugar Mills Association, estimated sugar production for the season starting October is 25 mt. The carryover stocks are a bit high at seven mt compared with 5.5 mt last year.
(The author is Whole Time Director of Geojit Comtrade Ltd. The views are personal)