Sugar prices in India will begin rising again next month after the affect of policies introduced to spare the holiday season from a market squeeze, evident in a 60% slump in stocks, wear off.

A raft of measures, including curbs on sugar stockpiling and looser import restrictions, which have stabilised, will provide only short-lived relief to prices, which have stabilised at about $604-638 a tonne, a 66% increase year on year.

"Sugar prices are expected to rise further from November as the market responds to tightening domestic supplies," a briefing from US staff in New Delhi said.

The country's inventories had fallen to an estimated 3.69m tonnes by the end of last month and will fall below 3.5m tonnes in a year's time,  the report added, equivalent to 54 days' supply.

In September last year, India had enough sugar in stock to last it 153 days.

Monsoon damage 

The squeeze on supplies in the world's biggest consuming country reflects poor cane production, after a government's subsidy regime encouraged farmers to sow rice and wheat instead.

This year, the crop has been held back by "delayed and uneven monsoon rains", as well as the hangover from poor plantings.

The shortfall will be made up largely by imports, which will rise to 6.0m tonnes from 2.8m tonnes last year. India has historically often managed some exports.

"Import prospects are expected to improve from December onwards after 'artificially' suppressed domestic sugar prices rise on tight sugar supplies," the report said.

Recovery ahead? 

The report added that sugar production was set to recover in 2010-11, although plantings may still be "tempered" by relatively high rice and wheat prices.

The USDA data is line with many industry forecasts on 2009-10 imports, which Barclays Capital last week estimated at at least 6m tonnes, although higher than some analysts on production data.

Rabobank said last month that whole forecasts of a drop to 14m tonnes in Indian production seemed pessimistic, output of 15m tonnes in 2009-10 appeared "likely".