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Thursday, May 28, 2009

Sugar plummets on futures ban

 SUGAR prices have plummeted anywhere between Rs 15 and Rs 30 per quintal countrywide post the futures-ban effected up to December 31 here on Tuesday. While in Delhi, wholesale price of the commodity plunged by Rs 30/qtl to the Rs 2,360-2,440/qtl level, in Mumbai, too, prices plunged. The price of S Grade sugar dipped by Rs 15/qtl to Rs 2,205/qtl whereas M Grade sugar price went down by Rs 20/qtl to Rs 2,250. Prices of the commodity are expected to go down further over the next week both on the spot and the futures market primarily on the back of rapid selling by traders immediately before and after the futures trade ban was imposed by the Forward Markets Commission (FMC).
    It is perceived that the dip in futures impacted the spot price of sugar in the domestic market. June contracts on the NCDEX dipped by 1.8% to Rs 2,266, while MCX July contracts for M Grade sugar went down by 1.6% to Rs 2,430/qtl while August contracts dipped by 2.66% to Rs 2450/qtl. "To the extent that prices have come down immediately in the wholesale, the objective of the futures ban—that of forcing out sugar stocked by traders or hoarded by speculators in anticipation of prices tightening in the future on the back of tight sugar supply in domestic markets—has been served. We expect this to keep wholesale prices down and impact retail prices as well," a government official stressed. The consumer affairs department was of the view that despite a weekly sugar release mechanism in place, millers and traders had found ways of successfully holding back sugar from the market.
    However, sugar output and demand-supply fundamentals will continue to persist unchanged in the longer term according to analysts and are unlikely to significantly impact sugar prices, retail in particular, in the longer term.
    For the sugar year 2008-09 (October-September), the output estimated is a record low of 14.50 million tonnes. In addition to a carryover stock of eight million tonnes and projected imports of 2.5 million tonnes, that is likely to just about cover an annual domestic consumption level of 23+ million tonnes, leaving virtually nil carryover stocks into the 2009-10 sugar year. This, even as the price of both imported raw and white or ready-to-eat sugar spirals upward in the global market in reaction to signals of big imports by India, which is among the world's biggest sugar consumers.
    Output estimates for 2009-10 are pegged at 20 million tonnes currently by the Indian Sugar Mills Association (ISMA), but the picture is still unclear. It is perhaps with these apprehensions in mind that the food ministry began exploring the creation of a buffer stock of at least three million tonnes of sugar to tide over the 2009-10 sugar year.




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Wednesday, May 27, 2009

Gujarat farmers reap gains with crops of foreign origin

JAPANESE watermelon, Taiwanese papaya, American maize and now, German gherkins. Crops of foreign origin are helping farmers in Gujarat rake in big moolah. German gherkins, the latest addition to the list, are known for use as salad. The crop was recently introduced in Kheda district by farmers and is ready to fly to European destinations.
    Ranked number one by International Food Policy Research Institute (IFPRI) for adoption of latest technology in farming in the country, Gujarat has successfully translated the adoption of modern farming practices to reap rich harvest. The agriculture sector in the state stood at a whopping Rs 48,000 crore during 2008-09 as against Rs 9,000 crore during 2004-05.
    Thanks to incentives from the government, the state will have at least one lakh hectare of land under the drip irrigation system by 2010. Currently, 57,000 hectares of land are under drip irrigation system.
    Said agriculture expert Jitu Patel, under whose guidance the farmers of Savli
and Bodeli in Vadodara district took to contract farming of Japanese Watermelon: "Nearly 400 acres have been acquired in Patdi taluka of Surendranagar district for this purpose."
    German gherkins were introduced between Nadiad and Chaklasi area in Kheda district last month. One acre of produce of this crop fetches Rs 1 lakh to farmers. "The production is available within 35 days from the date of sowing. The gherkins are exported to around 18 countries. Besides Kheda, we plan to encourage the farming of German Gherkins in Rajkot and Deesa (Banaskantha district)," Mr Patel further added.
    Earlier, Jamnagar experimented with banana farming that fetches Rs 140 for 20 kg, which is an amount much higher as compared to traditional crops. Mr Patel also said as compared to Saurashtra, the sandy soil in Kutch was better suited for long-term farming required for horticulture products like mango and pomegranate. The mango tree bears fruit within two years in Kutch, compared to three to four years in Talala (Gir) Junagadh in Saurashtra.
    In order to promote horticulturebased farming in the Kutch region, one NGO in Mandvi now encourages farmers by offering subsidy in the form of free supplies of saplings.
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Oil climbs to 6-month high of $63

Rising crude may pose a threat to policy reforms in India; Opec won't cut supply

THE sharp run-up in crude oil prices in recent weeks could prevent the government from biting the bullet of reform just yet to ease the pain of fuel marketing companies which are selling petroleum products are subsidised rates.
    The government is said to be considering a host of reforms, including allowing auto fuel to be sold at market rates, but these plans are being threatened as crude oil prices soared their highest level this year on Wednesday.
    Benchmark crude futures for July delivery on the New York Mercantile Exchange (Nymex) have risen by 54% since January to $63.14 per barrel.
    "The decontrol of fuel prices is a sensitive issue in India and the government may not immediately touch it now as it may be perceived as 'anti-Aam Aadmi.' The freeing of petrol prices would lead to an increase of Rs 2 at petrol pumps at current prices," said an analyst with an international brokerage firm.
    If crude oil prices hit $70 per barrel, it could threaten economic recovery in industrialised countries and if it crosses $80, it could affect emerging markets as well, industry experts fear.
    Oil prices have been through a sharp cycle over the past year. From a peak of $147 per barrel in July 2008, the price dropped to $32.40 in December 2008. When the government last cut prices by 11% in January, it had used a baseline crude basket price of $57-$60 per barrel.
    Rising crude oil prices have begun taking their toll on oil marketing companies after a brief respite between January and March. According to India's top oil marketer Indian Oil Corporation, fuel retailing companies have been incurring losses Rs 1.54 for every litre of petrol they sell, Rs 11.80 per litre of kerosene and Rs 88 for every LPG cylinder.
    Debjyoti Chatterjee, assistant vice-president of Admisi Commodities, believes that crude oil prices have risen on the back of buoyant performance by equity markets and he sees the rising trend continuing.
    "Crude is entirely dependent on economic growth for demand and the Opec oil cartel is in no hurry to alter output," he said, predicting that the price of the commodity would hit $65 per barrel in the coming months.
    Private players like Reliance Industries and Essar Oil are in worse shape than the state-run retailers because unlike Indian Oil, Hindustan Petroleum or Bharat Petroleum, they don't get compensated with oil bonds for selling fuel at subsidised rates. Reliance and Essar shut their fuel retail operations for over a year, unable to bear the burden of selling petrol and diesel government-controlled rates.
    However, analysts such as Ali Muhammad Lakdawala of Anand Rathi Commodities are not convinced that crude oil prices will continue to rise, arguing that the market has been in an 'oversupply' zone for some time now.
    "Also, in the past few months there has been no uniformity in supply cuts among Opec members. While supplies in March were down, they rose again in April," he said.
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Tuesday, May 26, 2009

Govt bans sugar futures till Dec

Clients Will Get To Square Off Existing Positions; Move Aimed At Checking Price Spurt

 BARELY a week since trading in wheat futures resumed after a gap of more than two years, commodity exchange regulator Forward Markets Commission (FMC) on Tuesday decided to temporarily suspend permission given to exchanges to launch new sugar contracts until December 31.
    The ongoing contracts in the commodity will continue to be traded until their expiry. However, no fresh trading positions can be initiated in them. Clients will only be able to square off their existing positions. This means ultimately volumes will drop to zero. The move could hurt many traders in sugar futures.
    Sources in the UPA told ET that the decision to suspend sugar futures was taken at the highest level. "The issue was dealt with at the PM's level," a senior political functionary, requesting anonymity, said. What he meant was that the Union agriculture minister Sharad Pawar was informed of the decision only at a later stage. The decision to suspend sugar futures came a day after Mr Pawar told the media that the government was not in a hurry to lift the ban on non-basmati rice exports.
    Confirming the suspension, Rajeev Agarwal, member, FMC, said: "Considering the supply-demand scenario and the inflationary expectations in sugar, the regulator has taken this step as an abundant caution. We have not suspended current contracts, but no new positions will be allowed to be taken in them. However, we have suspended permission for all futures contracts in sugar that have yet to be launched till December 31."
    Sugar prices have steadily risen on account of an estimated shortage in the current season's production. Against a production of 26.3 million tonnes last year, output this year is estimated at just 14.7 mt. Sugar production has been estimated lower because of lower availability of sugarcane, its diversion to competing sectors such as gur and khandsari and lower recovery. According to the latest government estimate, sugarcane production in the country may go down significantly to 289.2 mt in 2008-09 from 348.2 mt last year.
    "Last year, when there was surplus production, the government exported around 4.9 mt of sugar, which, after consumption, left it with a closing stock of 8 mt against 9.2 mt in the previous year. It is patently unfair on the part of anyone to blame the futures markets for the rise in prices, which reflect the underlying supply-demand situation," said a futures broker.
    Spot price data on NCDEX, the exchange that will be most affected by the suspension of sugar futures trading, show that price of the sweetener is up by over 50% at Rs 23.95 a kg.
    "The announcement could affect the volumes on NCDEX substantially as this a third instance (after grains and pulses) that the market regulator has banned an agri-commodity after a substantial rise in prices," said Atul Shah, Head (commodities), Emkay Commtrade.
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R-Power may earn Rs 4k cr from carbon credit sale

THE Anil Ambani-controlled Reliance Power is expected to earn more than Rs 4,000 crore over the next 10 years by selling carbon credits from its upcoming Sasan power project in Madhya Pradesh, according to people familiar with the development. The company is expected to get the UN-managed Clean Development Mechanism executive board's nod for 37.5 million of carbon credits by June, said an official who wished not to be named.
    When contacted, a spokesman for R-Power said the validation process for carbon credits is going on. The project has received the host country approval from the Indian government and German agency TUV Nord has been appointed as the designated operation entity for evaluating the eligibility for the credits, he added.
    According to R-Power's project design documentation with the UN body, the Sasan project qualifies the eligibility for generating 3.75 million units of carbon credits per annum — which would gross 37.5 million units in 10 years —at 80% plant load factor by saving green house gas emissions. Analysts with several research agencies such as the New Carbon Finance and Barclays have rated carbon credit prices in the range between 17 euros and 26 euros per unit and estimate the prices to move even higher due to limited supply of carbon credits.
    Even at a conservative estimate of € 17 per unit made by analysts of New Carbon Finance, RPower could earn about Rs 4,000 crore at current exchange rates, that is close to its equity contribution of Rs 4,850 crore for the Sasan project.
    Under the Kyoto Protocol of United Nations' Framework on Climate Changes, industrialised nations can invest in clean energy projects in developing countries and in return receive carbon credits which can be used for credit compliance, or sold to buyers. Potential buyers of credits are often individual companies who expect their emissions to exceed the standard levels.
    As per as the requirements under the CDM, R-Power's project design document was web hosted for global stakeholder consultation, on the website of United Nations' Framework on Climate Changes and has so far not received any objection, said an official familiar with the issue. He said the project is in the final stages of validation and would be submitted to the CDM executive board for registration in this quarter.
    R-Power recently completed its financial closure for the 4,000 megawatt Sasan ultra mega power project.

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THE taste of sugar in expected to turn bitter soon.

  Despite the lure of remunerative returns to the tune of Rs 140 per quintal for their canes in the current sugar season and an additional Rs 15 per quintal by the private sugar mills, in the form of cane development incentive, the farmers in Uttar Pradesh, the country's second largest sugar producing state, do not seem inclined towards planting sugarcane this year.

Even the prospect of the Centre considering a hike in the statutory minimum price (SMP) for sugarcane to Rs 107.76 per quintal for the 200910 season, instead of Rs 81.18 as in the last season, has not enthused farmers, who have shifted from cane to other crops like wheat and paddy.

In fact, the constantly dwindling acreage in the state is set to shrink further in the coming season by almost 6%, leading to lesser cane for the mills to crush. While in the crop season of 2007-08, the total cane area stood at 28.50 lakh hectares, in 2008-09, it came down to 21.40 lakh hectares and as per preliminary survey, it is expected to go down to 20.15 lakh hectares in the coming season, which is almost 6% lesser than last year.

As a result of this, sugar production also registered a marked dip. While in 2007-08, UP produced 73.19 lakh tonne of sugar, in 2008-09, the state's contribution came down to 40.48 lakh tonne. Low production of sugarcane also resulted in prices of sugar shooting up to an all time high of Rs 26-27 in the retail market.

According to sources in the sugar industry, sugar production in the state is expected to further go down to an all-time low of 40 lakh tones this season, following which prices are expected to skyrocket further.

The repercussions of the dwindling cane supplies in the state are enormous, not only for the sugar mills, which register low capacity utilisation and premature shutdown of plants, as seen in the last season, but also for the country.

India is the world's second largest sugar producer after Brazil and the biggest consumer of the sweetener in the world. However, in the season ending 2008-09, the country witnessed a dip of nearly 17 per cent in cane production to 290.45 million tonne.

Sources in the state sugar industry are also of the opinion that in order to check the disenchantment of the farmers in Uttar Pradesh and encourage them to grow more and more sugarcane, the state government is contemplating giving more sops, in terms of a substantial increase in the State Advisory Price for sugar, which will be over and above whatever statutory minimum price (SMP) the Centre announces. .

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