India sugar output set to shrink as erratic rain cuts yields

[NEW DELHI] Sugar production in India will drop this year after erratic monsoon rain in the world's largest cane grower after Brazil cut crop yields.

Output will fall 4.6 per cent to 27 million metric tons in the 12 months starting Oct 1 from a year earlier , the Indian Sugar Mills Association said in an e-mailed statement on Monday. The group had estimated production at 28 million tons in July.

The decline in the Indian harvest may help alleviate some of the inventory from five years of global surpluses and support prices in New York, which plunged to a seven-year low last month. Indian mills will work with the government to export sugar as reducing the domestic surplus will be key to boosting local prices, Abinash Verma, director general of the association, told reporters in New Delhi on Monday.

"Due to less rainfall in July and August, which are said to be important months in the growth of the cane crop, it is estimated that the yield per hectare may go down in Maharashtra," the association said. "It is also important to note that with better rainfall in September, there may be some revival in the situation." Production in Maharashtra will dwindle to 9 million tons in 2015-16 from 10.5 million tons a year earlier, while the crop in Uttar Pradesh will rise to 7.5 million tons from 7.1 million tons a year earlier, the association said. Producers will begin the 2015-16 cane crushing season with stockpiles of about 9.6 million tons, 28 per cent more than a year earlier, it said.

India has made it mandatory for mills to export 4 million tons of sugar in 2015-16 to reduce the inventory and boost local prices. Government will need to provide subsidies to make the shipments viable, Jonathan Kingsman, founder of Kingsman SA, a unit of McGraw Hill Financial Inc's Platts, told reporters in New Delhi on Monday.

Indian producers may report wider losses because of compulsory exports as global prices are low, Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd, told reporters. Shipments may become attractive if the government took steps to make cane prices affordable, he said.

Global sugar prices may start to rise in March as a world deficit emerges and bad weather in central America, Thailand, European Union and India's Maharashtra affect production, Mr Kingsman said. Reduced cane acreage in China will also help rally prices, he said.

"I am optimistic that India will be able to gradually export into a rising market," Mr Kingsman said.

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