Monsoon rains are crucial for farmers who plant cane as well as corn, cotton, rice and soybean in June and July
Sugar stocks gained strength, rallying 3-19 percent on June 27 monsoon spread to most of the country.
Rajshree Sugars was the biggest gainer among them with 19 percent upside, followed by Balrampur Chini, Bajaj Hindusthan, Uttam Sugar, Ugar Sugar, Dalmia Sugar, Dhampur Sugar, Dwarikesh Sugar, Kothari Sugars, Sakthi Sugars, etc., which gained between 3-7 percent intraday.
Monsoon rains have covered most parts of cane fields in Western India, Met Department said earlier this week. Hence, a shortfall in monsoon rains narrowed to 37 percent of the long-term average against 44 percent between June 1 and June 19, the office added.
Monsoon rains are crucial for farmers who plant cane as well as corn, cotton, rice and soybean in June and July.
However, ICRA Ratings told CNBC-TV18 that there could be a shortfall in production in the current season as drought-like condition in Maharashtra and Karnataka is likely to impact sugarcane planted last year.
In addition, ICRA said as ethanol capacities are under implementation which, there could be some diversion of molasses to ethanol manufacturing that could impact sugar production.
With the government aiming to increase diversion of sugarcane towards ethanol, we may see higher loan allocation to sugar mills for the production of ethanol, it added.
Hence, overall lower sugar production, monsoon deficiency in key areas and news of government considering export draft policy are helping sugar stocks to trade higher.
Generally, sugar prices react to projected demand-supply as well as current demand-supply, which could also be reflected in sugar stocks now.
As Budget is going to be announced next week, CARE Ratings feels the government could continue to make allocations towards schemes for development of sugar industry and facilitation of export amid high inventory level. Further, the government is likely to extend the monthly buffer stock quota which is currently effective till June 2019, it said.
The Minimum Selling Price (MSP) of sugar was revised from Rs 29 per kg to Rs 31 per kg in February 2019. Hence, the likelihood of any further upward revision of MSP is low, it said.Note: The story has been updated with Care Rating's comment and outlook for the sugar industry.