[T.S.R:11711] sugar update

Sugar may jump 36% to a 29-year high as a production shortfall in India, the biggest user, spurs imports for a third year, Bajaj Hindusthan Ltd. said.  Prices may advance to 30 cents a pound after March as the country doubles imports to as much as 7 million metric tons in the year to Sept. 30, said Kushagra Nayan Bajaj, joint managing director of the nation's top producer. Bajaj correctly predicted in July that sugar will reach 25 cents.
 
Sugar has almost doubled in the past year to the highest level since 1981 as rains delayed the harvest in Brazil, while a drought and a shift to other crops made India a net buyer for the first time in three years. Increasing prices may boost costs for Indonesia, Pakistan and Egypt as stockpiles may fall to the lowest ratio versus consumption in at least a decade.
Buyers face a "crunch time" Jonathan Kingsman, managing director of Kingsman SA, a Lausanne, Switzerland-based sugar broker and research company, said yesterday at a conference in London. "This situation could get worse."
 
India needs to import 6 million to 7 million tons in the season started Oct. 1, compared with 3.5 million tons in the previous year, to meet a shortfall in output, which would be little changed at 14.5 million to 15 million tons, Bajaj said. Purchases in 2010-2011 may drop to 4 million to 5 million tons as production rebounds to 19 million to 20 million tons, he said.
"If we are going to double our imports, you can have a wild guess what's going to happen," Bajaj said yesterday in an interview in Mumbai. There's a "consensus on the fact that it will definitely reach 30 cents
 
Speculator Bets

Not everyone is bullish. Sugar may decline to 19 cents a pound by the end of January as speculators exit the market after prices failed to repeat recent gains, according to Jean Bourlot, Morgan Stanley's former head of agriculture trading. Raw sugar will likely average 16 cents in the fourth quarter of next year, Standard Chartered Plc said in an e-mailed report yesterday.

Hedge funds and other large speculators have cut net long positions, or bets on price gains, in New York raw-sugar futures to the lowest level in more than six months, according to U.S. Commodity
Futures Trading Commission figures on Nov. 20.
 
Sugar at 30 cents would be the highest level since January 1981. The price reached 25.43 cents on Sept. 30, a 28-year high. Raw-sugar futures for March delivery fell 0.3 percent to 22.08 cents in New
York yesterday. White, or refined, sugar for March delivery gained 0.1 percent to $599.50 a ton in London.

Duty-Free Imports

Bajaj has contracted to buy 700,000 tons of raw sugar to increase output at its 14 factories to 1.4 million tons this season, up from 600,000 tons in the previous year, Bajaj said. India has extended
duty-free imports of raw sugar until Jan. 1, 2011 and white sugar until March 31 to bolster supplies.
India's sugar production may jump to 17.68 million tons in the season started Oct. 1, according to interviews with 631 farmers across six states. Global sugar output may rebound in the 2011-2012 season with a "bang" as high prices encourage farmers to plant more, Bajaj said.

These high prices will create a situation where you have a mother of all crops at some point that would depend on weather and prices of alternative commodities.
 
The world may have a surplus of 500,000 tons in 2010-2011, compared with an estimated 7.2 million tons deficit this season, the International Sugar Organization said.
 
The government fixed the prices at Rs190 to Rs195, which the mills have to pay to the farmers for procuring sugarcane for the year FY2010.

Mills are very comfortable with the pact of ISMA as the Q1 10 and Q2 10 would be very interesting quarters for the mills. Mills are expected to record superior profit in the next coming quarters on account of higher realization prices.

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