India is expected to have a surplus for its 2010-11 marketing year, which runs from October through September. This is a dramatic reversal from the previous two deficit seasons which turned the self sufficient and well-stocked country into an importer. Most production estimates hover around 24.5 million tonnes, up from 18.8 million tonnes in 2009-10. A recent estimate puts consumption at 22.5 million tonnes. A 500,000-tonne export license has been bandied about over the past few months, and the government is procrastinating over the move. A decision was expected in December.
We’ve pointed out in past articles on sugar that even with the surplus, Indian ending stocks will be half – or less – of what the heavy sugar-consuming nation was accustomed to before the two consecutive drought-plagued seasons in 2008-09 and 2009-10. We find the 22.5-million-tonne usage figure that has been appearing in press reports recently to be somewhat on the low side. Average consumption in the past three years has been about 24 million tonnes, and we don’t know any rationale for such a sharp drop. If consumption is actually in line with the past few years, then the surplus is minuscule and it would explain why the government has been dragging its feet on issuing export licenses.
Indian exports would be bearish in the near term. Australian exporters saw their exportable surplus slashed by about 35%, or 1.2 million tonnes. Indian exports would provide significant compensation. Lower ethanol production in Brazil and the threat of Indian exports could pressure prices. Still, the pool of available sugar for world trade is tight and makes prices vulnerable to further rallies. Despite the potential for slightly bearish fundamentals on the horizon, sugar statistician Czarnikow on March 1 increased its deficit forecast for the global balance sheet, to 3.7 million tonnes, from 2.8 million tonnes.
Remain long. Raise sell stops to 26.50, basis May, close only.
Sholom Sanik is an analyst with Friedberg Mercantile Group Ltd. He can be reached at firstname.lastname@example.org
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