Sugar Future Delivery Trade Climb on ICE

ICE Futures U.S. Exchange, sugar futures for July delivery traded at USD0.2568 a pound during European morning trade, climbing 0.77%. Sugar futures rallied for a fourth day on Tuesday, hitting a nine-week high as a combination of lingering concerns over sugar crops in Brazil, worries over shipping delays from Thailand and a weaker U.S. dollar boosted prices. It earlier rose to USD0.2573 a pound, the highest price since April 13.

Sao Paulo-based sugar industry group Datagro reduced its forecast for the nation's sugar harvest to 536 million metric tons, down from an earlier estimate of 561 million tons. The nation produced nearly 557 million tons last year.

The group said that aging plants and wet weather while the crop was developing reduced yields from the nation's Center-South region, the world's largest sugar-producing area.

Brazil is the world's largest sugar producer and exporter, with the U.S. Department of Agriculture estimating the nation accounts for nearly 20% of global production and 39% of global sugar exports.

Meanwhile, Piromsak Sasunee, chief executive of Thai Sugar Trading, the nation's largest shipper said that vessels in Thai ports were waiting to load as much as 7% of this year's supply, as a sunken ship blocking one of the main waterways and a lack of labor combined to delay exports.

Thailand is the world's second biggest sugar exporter.

Weakness in the U.S. dollar also contributed to sugar's strength. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.21% to trade at 74.73.

A weaker dollar boosts the appeal of U.S. crops to overseas buyers and makes commodities more attractive as an alternative investment.

Elsewhere, wheat for July delivery slipped 0.17% to trade at USD7.4138 a bushel, corn for July delivery dropped 1.1% to trade at USD7.7312 a bushel, while soybeans for July delivery eased up 0.06% to trade at USD13.8200 a bushel during European morning trade.

Sugar output of India, the world''s second largest producer after Brazil, could rise by about 10 per cent to 26.5 million tonnes in 2011-12 sugar year starting October on higher cane area, industry body ISMA said today.

Indian Sugar Mills Association (ISMA) has pegged the production at 24.2 million tonnes in the current sugar year as against 19 million tonnes in the 2009-10 (October-September). The annual domestic demand stands at 22-22.5 million tonnes.

ISMA demanded that the government should allow further export of 1.5 million tonnes of sugar under Open General Licence (OGL). In April, the government had allowed 5,00,000 tonnes sugar exports under OGL.

"We expect sugarcane area to go up by five per cent. The area is about five million hectare currently. Production is expected to be about 26-26.5 million tonnes in the next sugar season," ISMA President Narendra Murkumbi told reporters here.

"Next year we are expecting a surplus crop and currently we have enough stock. So, this is the right time to export sugar and reduce the sugar stocks held with the mills," said Murkumbi, who also heads Shree Renuka Sugars.

He pointed out that the sugar prices have been slowly but continuously falling due to delays in exports and restrictions on domestic demand because of stock-holding limit on traders.

"The mills are so overburdened with surplus inventories that most of them do not have adequate storage capacities and cash flows, which has led them to resort to distress sale of sugar, which is only bringing down the prices," he said.

"The seriousness of the problem may be judged by the fact that value of stock balance with sugar mills at present would be Rs 35,000 crore," he added.

ISMA noted that if the government does not take any steps to export some of the surplus sugar, the opening balance for 2011-12 season might be over 6.5 million tonnes. The opening stock for 2010-11 season stood at about five million tonnes.

With falling domestic prices and improving international sugar prices, the mills stand to gain about Rs 500 per quintal of sugar exports if the same is allowed immediately.

The current ex-factory prices are lower by over Rs 300 per quintal than the cost of production, he said, adding that such a situation will lead to cane price arrears to farmers. The cost of production is around Rs 2,900/quintal in Uttar Pradesh and Rs 2,700/quintal in Maharashtra.

ISMA also demanded that the duty-free regime on sugar import should end as "this is hurting market sentiments and sending wrong signals to the market about clarity of government policies and intentions".