Trade with Commodities: Sugar prices may soften next season

Friday, May 22, 2009

Sugar prices may soften next season

Centre's Plan To Introduce More Remunerative SMP Plan May Lure Farmers To Increase Production

AFTER a whole year of embittering sugar prices, retail cost for the commodity could soften marginally next season (October-September) on the back of increased sugarcane area coverage and sugar production. This could mainly be on account of a more remunerative statutory minimum price (SMP) being readied by the Centre in a bid to boost the flagging sector so as to check high-priced imports spiralling consumer prices. In fact, this could be one of the earliest decisions (along with other Kharif crop prices) taken by the government once it settles into place. The PM's Economic Advisory Committee (EAC) is understood to have recommended an SMP of Rs 107.76/quintal for sugarcane in the coming season compared to the Rs 125/quintal recommended by the Commission on Agricultural Costs and Prices (CACP) and the low SMP of Rs 81.18/quintal in the 2008-09 sugar year.
"EAC recommendation on sugarcane prices will come up very soon before the Cabinet for clearance. With farmers getting a good remuneration for sugarcane during the current season across the country, the area under cane could go up by an estimated 10-15%. Moreover, a good monsoon has been forecast for this summer. Poor monsoon was one of the key reasons why sugarcane area coverage was low last year, leading to low sugar output," a food ministry official emphasised. Industry insiders have projected that the demand-supply gap would ease in the new season as sugar output would jump by an estimated 40% to around 20.5-21 million tonnes in the new sugar year beginning October 2009.
"In the coming months, however, sugar supplies in the domestic market are unlikely to increase as international prices are currently ruling at a premium of 5% to the current wholesale price in Maharashtra. According to commodity market analysts, therefore, medium-term sugar prices would remain firm. The Indian Sugar Mills Association (ISMA) has already estimated a fall of 44% in sugar output in 2008-09 (to only 14.7 million tonnes) necessitating imports of up to 3 million tonnes.