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SUGAR

ISMA releases preliminary sugar production estimates for ’19-20 season
Thursday, 04 July, 2019, 08 : 00 AM [IST]
Our Bureau, New Delhi
According to preliminary estimates released by the Indian Sugar Mills Association (ISMA), India’s sugar output is estimated to decline by 14.4 per cent y-o-y (year-on-year) to 28.2 million tonne during the sugar season (i.e., between October 2019 and September 2020).

The expected fall in production is mainly due to lower estimates for Maharashtra and Karnataka. Output from Maharashtra and Karnataka is expected to go down by 34.7 per cent to seven million tonne and 19.8 per cent to 3.5 million tonne, respectively, during the year.

While production is expected to fall, the opening stock for the new season 2019-20 stands at an all-time high of about 14.5 million tonne. Considering production and opening stock, India will have an availability of 42.7 million tonne of sugar to fulfill the domestic and export requirements.

Domestic consumption can be expected to grow by 2.5 per cent and stand at 26.7 million tonne. In addition to this, exports can be estimated at three million tonne (provided government support exports) assuming that India will export the same quantity of sugar the country had exported last year when there was high sugar production.

Even if domestic consumption and exports are factored in, India will have a supply glut and closing stock of about 13 million tonne of sugar for 2019-20. This quantum again continues to be more than the normative requirement of 2-3 months’ sugar stock which is around 4-6 million tonne of sugar.

Trend in sugar prices
The surplus situation is likely to keep the domestic sugar prices under pressure even when sugar output is expected to fall during the year 2019-20. Thus, we expect sugar prices to remain range bound or increase moderately and average in the range of Rs 34-35 per kg in the coming months.

The average sugar prices in India have been on a declining trend since the start of Sugar Season (SS) 2017-18 on account of a surge in sugar production during the year. Sugar production in India jumped by 57 per cent on a y-o-y basis to million tonne in 2017-18.

The prices that averaged at Rs 39 per kg in October 2017 fell to the lowest level of Rs 28 per kg in May 2018. To prevent the downward trend in prices, the government fixed the MSP for sugar at Rs 29 per kg on June 6, 2018. Resultantly, the prices increased and averaged at Rs 32 per kg in the month of June 2018 and grew further to Rs 34 per kg in July 2018.

The prices however fell in the next month and remained in the range of Rs 32-33 per kg between August 2018 and January 2019. To provide support to the prices, the government further raised the MSP (minimum support price) to Rs 31 per kg on February 14, 2019. The prices, in turn, averaged at Rs 33-34 per kg between April and June 2019.

International sugar demand-supply situation
As per the United States Department of Agriculture (USDA), world sugar production is estimated at 180.7 million tonne, and world domestic consumption is estimated at 176.4 million tonne for 2019-20. The total production is expected to exceed domestic consumption by 4.3 million tonne.

Further the year ending stock situation for 2019- 20 is estimated at 47.8 million tonne, a y-o-y fall of six per cent. With this demand-supply and stock situation, we expect the international sugar prices to remain stable or rise moderately backed by a growth in consumption.

CARE Ratings View
India will have a supply glut and closing stock of about 13 million tonne of sugar for 2019-20 even if domestic consumption and exports are factored in. This quantum again continues to be more than the normative requirement of 2-3 months’ sugar stock which is around 4-6 million tonne of sugar.

The surplus situation is likely to keep the domestic sugar prices under pressure even when sugar output is expected to fall during the year 2019-20. Thus, we expect sugar prices to remain range bound or increase moderately and average in the range of Rs 34-35 per kg in the coming months.
 
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