Sweet rush! Where is your sugar price headed? Find out here
Since last fiscal, average sugar price has witnessed downward trend, due to uptick in production. In FY18, sugar production in India rose by 57% on a yearly basis to 32.5 million tonnes. Sugar price which had once averaged at Rs 39 per kg in October 2017, even dropped to the lowest level of Rs 28 per kg by May 2018 end. Interestingly, the government has been managing the downside in sugar prices with help of Minimum Support Price (MSP). Going forward, sugar price for common man is either going to remain range bound or witness slight rise. Here’s how your sugar price will change in coming months. Let’s find out!
According to CARE Ratings research note, to prevent downside in sugar prices, the government fixed the MSP for sugar at Rs 29 per kg last year in June 2018. Between August 2018 to January 2019, sugar prices have been hovering between Rs 32-Rs 33 per kg. Interestingly, in mid-February 2019, the government once again hiked MSP to Rs 31 per kg, which has now led average sugar price between Rs 33 - Rs 34 per kg between April - June 2019 quarter.
Interestingly, as per the United States Department of Agriculture (USDA), world sugar production is estimated at 180.7 million tonnes and world domestic consumption is estimated at 176.4 million tonnes for 2019-20. The total production is expected to exceed domestic consumption by 4.3 million tonnes.
Back home, the preliminary estimates released by the Indian Sugar Mills Association (ISMA), shows that India’s sugar output is estimated to decline by 14.4% y-o-y to 28.2 million tonnes during the sugar season October 2019-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% to 7 million tonnes and 19.8% to 3.5 million tonnes, respectively, during the year.
Where is your sugar price headed?
Bhagyashree C. Bhati, Research Analyst along with Madan Sabnavis, Chief Economist at CARE Rating in their research note said, “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 tonnes. Considering production and opening stock, India will have an availability of 42.7 million tonnes of sugar to fulfil the domestic and export requirements. Domestic consumption can be expected to grow by 2.5% and stand at 26.7 million tonnes. In addition to this, exports can be estimated at 3 million tonnes (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."
The duo adds, “Even if domestic consumption and exports are factored in, India will have a supply glut and closing stock of about 13 million tonnes 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 tonnes of sugar.”
With that, 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, the duo in their note said, “we expect sugar prices to remain range bound or increase moderately and average in the range of Rs.34-Rs.35 per kg in the coming months.”
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