Following India’s decision to prohibit certain rice exports in order to manage domestic prices, traders express concern that another essential food commodity, Sugar, might become susceptible to similar measures.
As global supplies of sugar tighten, the world’s reliance on sugar exports from the South Asian nation has grown significantly. However, there are mounting concerns due to uneven rainfall across India’s agricultural belts, which has raised apprehensions that sugar production might fall short for a second consecutive year during the upcoming season starting in October.
As a consequence, this could potentially curtail the country’s capacity to export sugar. In response to safeguard domestic supplies and stabilize prices, the government has already imposed limitations on the overseas sale of wheat and certain rice varieties. These measures add further strain to global food markets, which have already been disrupted by adverse weather conditions and escalating conflicts in Ukraine.
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The rice export ban is a clear signal the government is concerned about food security and inflation, said Henrique Akamine, head of sugar and ethanol at Tropical Research Services. “The worry now is that the government will probably follow suit and do something similar regarding sugar,” he added.
According to Aditya Jhunjhunwala, President of the Indian Sugar Mills Association, sugar cane fields in the primary producing regions of Maharashtra and Karnataka experienced insufficient rainfall in June, resulting in crop stress. As a consequence, the group anticipates a 3.4% decline in sugar output compared to the previous year, with an estimated production of 31.7 million tons in the 2023-24 season. However, Jhunjhunwala also mentioned that despite this decrease, domestic demand can still be met with the available supplies.
In the meantime, India is gearing up to utilize a larger quantity of sugar for biofuel purposes. The Indian Sugar Mills Association foresees mills diverting approximately 4.5 million tons of sugar to produce ethanol, marking a significant increase of 9.8% compared to the previous year.
“At this production level, India might not release any export,” said Bruno Lima, head of sugar and ethanol at StoneX. “We’ll have to follow closely if the ethanol diversion will be done in full.”
On Friday, Food Secretary Sanjeev Chopra criticized ISMA’s early evaluation of reduced sugar production, stating that it is highly premature and has caused unnecessary panic about a potential shortage in the country, as reported by the Press Trust of India.
India has imposed limitations on sugar exports in the past. For the 2022-23 season, the country set a cap of 6.1 million tons for shipments, a significant decrease from the 11 million tons allowed in the previous year. Analysts, including Akamine and Lima, project that for the next season, the export allowance might be further reduced to only 2 million to 3 million tons or potentially eliminated entirely. This situation poses a risk of triggering another surge in global sugar prices.
Sugar futures have witnessed a rise of approximately 20% this year, although they have slightly retreated from their peak in April when they reached 26.83 cents per pound, the highest level seen since 2011. Investors are concerned about the potential impact of El Niño, which could result in hotter and drier weather conditions in South and Southeast Asia, thus adversely affecting sugar production in those regions. Furthermore, Thailand might also experience a decrease in sugar output due to these weather uncertainties.
The combination of reduced production in various regions, such as Southern Africa and Central America, adds to the potential for another price rally in the sugar market. Akamine predicts that prices could trade within the range of 25 cents to 27.5 cents per pound in the upcoming season, while on Friday, they stood at 23.69 cents. However, the abundant sugar crop in Brazil is acting as a limiting factor on further price gains.
As of now, the Indian government is not expected to finalize the 2023-24 sugar export quotas. Since the harvest is scheduled to commence in October, any decision on export quotas is likely to be deferred until a later date. Additionally, the recent improvement in rainfall, as reported by ISMA, is anticipated to have a positive impact on the sugar crop, further influencing the government’s decision-making process.
“Officials will wait until they have full visibility of production,” said Carlos Mera, a senior commodity analyst at Rabobank.
