Sugar price rise in India 2009

Situation of Sugar & some allied commodities have been sky rocketing in India and globally this fiscal. This has been coupled by Dairy commodity prices shooting up more than 30% in past one month and sugar prices shooting up by more than 70% in 5 months in commodity exchanges worldwide. So it’s not suprising for industries dependent on these raw materials will have to pledge more money from their budgets this year towards commodity purchases.

Though technically we claim sugar as a cyclic crop in India and wipe off the hands but the fact is, we have never been able to regulate/ deregulate the drastic market swings and provide consistancy to framers on sugar pricing as most of it is through cooperatives and it’s a more political crop in India.  This year sugar prices not only kept pressure domestically but also in international markets where in, it has doubled within in a span of 4 months from 13th April to 1st August from 13 cents to 26 cents/ pound. Two major reasons have caused this effect this year, Growing demad in Brazil for diversification into Ethanol production, coupled with fall in production out put from India i.e we are short by 4.5 million Mt in inventories compared to previous years. Though our Mr. Perfect in Agriculture ministry denies it, but the ground reality reflects on price momentum.

Thanks to the Indian met department in India for early predication of drought in many parts of India, where in the average rainfall in sugar growing regions will be roughly 63% which has created a cumulative speculation on domestic price rise and panic in international market, with two major sugar producers/ exporters in world are in vaccum for Sugar. Yes this year we will be short on sugar production and India has to import almost 1/4th of its volume from International market.  Last two years there was a huge drop in sugar prices with drop of more than 35% which has left farmers look into alternate cropping, this has created a huge vaccum in total output coupled by drought this fiscal. Now sugar prices in International markets have come up to the same peak levels of 1981 with a 28 year high levels @ 25cents/ pound at LIFFE & ICE terminals.

Suprisingly this year India has imported large volumes of Milk fat, Lactose & Dairy commodities  from international markets to cope up the festive demand in Sep/ Oct & November. This is driving the Dairy commodity prices every week with volumes shrinking and demand building up in India, China & Far east.

This price rally is not only limited to Sugar, Dairy or pulses this fiscal, but we are also experiencing the same in many other commodities like Gold, Bullion & Metal markets as well.

I predict that this year it will be an upward trend in commodity markets, though you may find some mere corrections till next Kharif. May be once we have favourable forecasts lining up from next march/ April, we may expect some reversal.