Sugar exports from India may not fall as far as some observers believe, despite a hit to production from a weak monsoon – but, with London sugar prices at a two-year low, its imports will be more generous too.
US Department of Agriculture staff in New Delhi flagged the dent to cane production in Karnataka and, in particular, the major producing state of Maharashtra from below-average rains during the early monsoon period.
"Maharashtra has been facing acute water scarcity since January," the USDA officials said in a report, flagging that, besides discouraging sowings of new cane, it had diverted some crop to cattle feed.
However, the impact will be in part offset by higher cane sowings in Uttar Pradesh, "encouraged by normal rains and higher cane price payments", they said, pegging India's 2012-13 sugar output at 25.6m tonnes.
The International Sugar Organization has pegged production at 24.6m tonnes, and Czarnikow at 25.9m tonnes.
Imports to rise
However, the USDA bureau was more generous than the ISO on exports for 2012-13, pegging them at 2.2m tonnes, enabled by ample carry-in inventories, after high domestic prices over the summer curtailed demand.
"Sugar prices increased in July on expectations of lower sugar production due to low rainfall."
Furthermore, extra supplies will be gained from strong imports, pegged at 500,000 tonnes, above the de minimis figure forecast by the ISO, and underpinning a "comfortable supply situation" in India, the top sugar consumer.
India vs London
The comments come as India is considering doubling the import tax on white sugar imports to protect domestic refiners from competition from cheap foreign imports.
White sugar futures in London for December delivery fell on Wednesday to $536.50 a tonne, the cheapest for a spot contract since August 2010.
Meanwhile, a sharp rebound in the rupee against the dollar since the start of September has boosted the affordability of imports.
Sugar futures in India have also declined in recent weeks, sapped by government pressure on millers to provide 4m tonnes to the domestic market during October and November, and meet demand from the Dussehra and Diwali festivals.
However, at Tuesday's low of 3,270 rupees per 100 kilogrammes, the weakest for three months, they were equivalent to some $610 a kilogramme, well above foreign values.