The prices of sugar have increased due to a decline in overall production compounded by deteriorating weather and volatile market conditions. Raw sugar prices are trading at an 11-year high, and the Indian sugar prices have been surging for the fourth straight month in April.
Analysts predict that prices could shoot even higher due to the gloomy weather that will continue to affect crop production and market supply of the commodity.
Cane crushing season has started to wind down in recent weeks, and large downward crop revisions have begun in key producing nations, including India, Thailand, China, and Pakistan. India is the world’s second-largest sugar producer after Brazil.
“Sugar fundamentals are quite bullish for prices to remain elevated in the short to medium term,” said Girish Chhimwal, a sugar analyst at S&P. Prices of processed foodstuffs are also rising globally, according to analysts.
Also Read: ISMA cuts sugar output estimates by 3.5% to 328 lakh tonnes for 2022-23 marketing year
Lower output in Maharashtra
Sugar industry body Indian Sugar Mills Association (ISMA) has revised downwards the country's sugar production estimate to 328 lakh tonnes for the current marketing year ending in September, from an earlier projection of 340 lakh tonnes.
The downward revision has been made due to a fall in sugar output in Maharashtra, which accounts for more than one-third of the country’s sugar output. Output fell to 105 lakh tonnes in the 2022-23 marketing year (October-September), from an earlier projection of 121 lakh tonnes in the state.
"Crushing season in Maharashtra has ended at 105 lakh tonnes, lower than our earlier estimate, due to unexpectedly lower cane yields owing to higher ratoon crop share and uneven distribution of rainfall," ISMA said.
ISMA had earlier stated that sugar production fell six per cent to 311 lakh tonnes till April 15 of the 2022-23 marketing year ending in September, mainly due to lower output in Maharashtra.
In terms of sugar production, Maharashtra is looking at a major decline of around 1.5 million tonnes while Karnataka has also seen a decline in production by 0.3 million tonnes.
Analysts believe that tight supplies could start showing by October or November when the festival season begins, and consumers can expect higher sugar prices by the beginning of winter. The summer season demand is also expected to be on the stronger side, with households contributing to 33 per cent of the total sugar demand.
Also Read: Sugar prices increase on production drop; mills divert sugarcane for ethanol
Adverse weather to take prices higher
According to S&P’s Chhimwal, sugar prices should trend towards staying elevated in the 21 to 24 cents per pound range. “However, the El Nino risk on Asian production outlook could far offset in the medium term and take prices much higher,” he cautioned.
According to the National Oceanic and Atmospheric Administration, there is a 62 per cent chance of El Niño conditions from May to June. Depending on the monsoon rainfall in Asia, the sugar market could potentially become very volatile and weather-driven in the medium term, according to analysts.
Another factor pushing prices higher is OPEC’s recent surprise decision to slash oil output by around 1.16 million barrels per day, which has encouraged the diversion of sugarcane toward ethanol production and away from sugar supplies, according to a report by Fitch Solutions earlier this month.
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