India in 2015/16: Record Production Expected?

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We forecast India could produce a record amount of sugar in the coming season. From 28.6m tonnes in 2014/15 (the previous record in 2006/07 was also 28.6m tonnes), we think production will grow to around 28.9m tonnes. This is a remarkable outcome given that India has been in domestic surplus for the preceding 5 years and domestic prices are 22% lower than they were 12 months ago. The prospect of increasing stocks will also add to the pressure on the government to assist exporters, which could have negative effects for the world market. Looking at the key regions in more detail:

“At this early stage it looks like India could see record sugar production again in the upcoming season. Growth in production in UP and Karnataka should offset the reduction in output in Maharashtra, though the weather could obviously still play a large role.”

William Wallace, Analyst

Maharashtra

  • Maharashtra is a key cane state in India. Last year, 36% of Indian sugar output was produced here.
  • Total area planted to cane in Maharashtra in 2015/16 is forecast at 99% of 2014/15 acreage, at 1.0m ha.
  • There will be less 18-month adsali cane and less plant cane in the state.
  • However, last year’s large plant cane area has been transferred into ratoon cane area this year.
  • As a consequence there will be more ratoon cane grown relative to plant cane in Maharashtra this year. 
  • Plant cane yields are typically a little higher than ratoon yields.
  • Given the lower ag yields for ratoon cane, we expect cane availability for 2015/16 to be down 2.5% year on year at 99.6m tonnes (101.9m tonnes in 14/15)
  • We believe sucrose yields will be almost unchanged this season at 11.3%.
  • We consequently forecast Maharashtra sugar production at 10.14m tonnes, compared to 10.47m tonnes in 2014/15.
  • A point to watch: the monsoon has been disappointing in parts of Maharashtra this year.
  • This is unlikely to make a great difference to this year’s production estimate owing to widespread irrigation and the possibility of winter rains.

Uttar Pradesh

  • In UP returns from cane are still significantly better than they are for wheat and rice, the two major alternatives.
  • However, total acreage has still been falling, partly due to increasing urban development driving increased growth of vegetables and poplar (for plywood).
  • While total area is in a long term downward trend, ag yields have been improving in Western and Central UP thanks to the introduction of new varieties.
  • These improved varieties give higher yields, which benefits the farmer, and higher recovery, which benefits the mill.
  • Early adopters in west and east UP have both seen improvements in recent years.
  • At present we are not assuming any big changes in cane diversion for the upcoming season in UP.
  • Consequently we believe the increase in ag yields (52.6mt/ha to 55.2mt/ha) and sucrose recovery (9.55% to 9.8%) will offset the drop in acreage in UP.
  • We expect 2015/16 production to be almost 500k tonnes higher than last year at 7.6m tonnes.
  • There’s little evidence yet to suggest farmers will be giving up cane any time soon despite this year’s arrears.

“Given the prospect of another season of domestic surplus, pressure is likely to build on the government to provide further support to the sector. Domestic prices are down almost 25% in 12 months and are far below cost of production. We think it is likely the government attempts to subsidise exports once more in 2015/16.”

Stephen Geldart, Analysis Manager

Karnataka and Tamil Nadu

  • Karnataka production is growing. The effects of a wave of investment in the state following decontrol continues to be felt with more mills coming online each year.
  • Conditions have been good for cane growing in Karnataka and additional processing capacity should encourage farmers to increase area.
  • While the plant cane area is expected to be lower this year, the overall acreage estimate is a new record.
  • We expect to see a 300k tonnes increase in the state’s production this year, to 5.4m tonnes.
  • Finally Tamil Nadu cane area is still falling.
  • The region has been struggling with drought for the past few years.
  • Both yields and area have been affected. The state’s production has halved since 2011/12.
  • In 2015/16 we expect 1.2m tonnes of sugar to be produced, roughly in line with 2014/15. 

Conclusion

William Wallace, Analyst, said, “At this early stage it looks like India could see record sugar production again in the upcoming season. Growth in production in UP and Karnataka should offset the reduction in output in Maharashtra, though the weather could obviously still play a large role.”

Stephen Geldart, Analysis Manager, said, “Given the prospect of another season of domestic surplus, pressure is likely to build on the government to provide further support to the sector. Domestic prices are down almost 25% in 12 months and are far below cost of production. We think it is likely the government attempts to subsidise exports once more in 2015/16.”

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