Given the long breaks that happen between episodes, this column should be renamed from Fortnightly Gyan to Occasional Gyan 😉
INDIAN CROP & MONSOON UPDATE
The Indian Production for the 2020-21 crush is inching its way to 30.9 million MT. The big question is the crop for 2021-22. The Monsoon in all the growing regions has been close to normal with a good spread of rains in the past couple of months. The area under cane across all the major cane growing regions is marginally up. Water levels in the reservoirs have been close to the upper range of the Long Term Average thus assuring the farmers of ample water availability during the post-monsoon phase. Given all the input production for 2021-22 crop is expected to be in the region of 32-33 million MT given that about 2.8 to 3.0 million MT of sugar equivalent would get diverted to the Ethanol Blending Programme.
However, one must put a caveat here to take into consideration the continued elevated prices of sugar in the Domestic Market. If the prices remain high (around the ₹35,000 PMT ex-Mill levels in MH/KTK) we could see reverse diversion of sugar from Ethanol to Sugar.
The World Market has seen a steady rise since the last report. The lower than normal rainfall during the early part of the year followed by a couple of episodes of Frost during July & August in Brazil have lead analysts to downgrade the Brazilian CS crop, with some even projecting a crush number below 500 million MT for the current crop. With the kind of damage suffered by the Cane in Brazil, it seems that it will be at least another 18-24 months before the Brazilian crop will recover. In the meantime there is very little relief expected from other origins, thus all pointing towards a steady to firm World Market in the near future.
While the market continues to be supported, the weakening of the Spread in New York and London points towards weak physical demand in the near term, which is being caused by “Sticker Price Shock” and disruption in logistics. For the moment Destination markets continue to eat into their stocks with prices at destination ruling well below replacement. The container freights have gone up by as much as 5 to 6 times (yes a multiple of 5 & 6) to most destinations causing much heartburn for the trade. In sympathy freight for Bulk and Break Bulk vessels have also gone up 2 to 3 times over the past few months causing a disruption in trade flows.
With the MAEQ quota of 6 million MT for 2020-21 being exhausted, Mills had switched to selling sugar for exports under the “Open General License” route (with expectation of zero incentive) in order to liquidate their stocks before the new season commences. Some mills had gone a step further and contracted for exports against the new crop, with almost 1 million MT of trades taking place. We understand that some of these new contracts are now in jeopardy as the prices in the world market (and in sympathy the domestic market) have rallied by almost USD 80 PMT. There are rumours that Mills that contracted sales for the new crop in the range of ₹30,500 to ₹31,000 PMT ex-Mill are now looking to re-negotiate (😊) the prices. This is what happened in 2008-09 where we saw wholesale defaults by Mills in MH with the trade left holding the proverbial can. One hopes that better sense will prevail and contracts will be honoured.
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Indian Sugar Industry Guru – Mr. Yatin Wadhwana is a strategic consultant and trader with over 35 years of experience. He is Director at Gradient Commercial Pvt. Ltd. which undertakes strategic trades, consultancy and advisory roles. Apart from sugar, he has also been involved in Supply Chain Management, Logistics and the trade of other agri-commodities including wheat, rice and soybean.
To get in touch with Mr.Yatin Wadhwana write on email@example.com
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