(Bloomberg) -- India may roil the global sugar market again as prospects for next year’s cane crop have brightened due to brimming reservoirs.
Bountiful monsoon rains this year have led to above average water levels in reservoirs, which will in turn boost the amount of sugar cane that’s planted, according to industry and Indian government officials. Sugar output in the country is expected to bounce back in 2020-21 from an estimated three-year low this year, they said.
“The only thing that can stop cane plantings in India is the hand of God,” said Rahil Shaikh, managing director of trading company Meir Commodities India Pvt. “Other than that, cane will be the king and will be ruling the country for a long time.”
Bumper crops from India, which vies with Brazil as the world’s top producer, have been blamed for causing a global sugar glut, leading to two years of more than 20% declines in world sugar prices. While the market has recovered in 2019, partly on crop setbacks in India, sentiment may worsen again if the country returns to record output.
Major producers, angered by Indian export subsidies, have complained to the World Trade Organization in a bid to get the country to hold back shipments. The WTO is unlikely to be able to resolve the issue quickly, and India is likely to export significant amounts again, Rabobank said.
Brimming Reservoirs
India’s 120 main reservoirs held about 140 billion cubic meters of water as of Dec. 19, 48% more from a year earlier and about 38% higher than the 10-year average, according to government data. It’s a boon to the cane crop, which is being planted now, and will help boost the acreage in major producing regions of the country.
The acreage in the western state of Maharashtra will be higher than the 843,000 hectares (2.1 million acres) in 2019-20 as better soil moisture and availability of water have been encouraging farmers to plant more sugar cane, said Shekhar Gaikwad, sugar commissioner in the state which is the second-biggest grower in India.
Higher output will boost sugar inventories in the South Asian nation, potentially increasing overseas sales next year after what may be the biggest global shortage seen in four years in 2019-20. India aims to export 6 million tons of subsidized sugar this year to cut its huge stockpiles of about 14 million tons -- enough to meet the country’s local demand for more than six months.
“Barring any weather catastrophe, the country will be a net exporter,” said Gurdev Gill, vice president for agriculture trading at Marex Spectron in London.
India suffered a setback this year as droughts and floods in some areas of the western region hurt cane crops. Sugar output may drop to a three-year low of 26.85 million tons in the year that began on Oct. 1, according to the Indian Sugar Mills Association. Production may even drop to 26 million tons if some cane juice and B-heavy molasses are diverted to ethanol, it said.
“Weather is unpredictable and it’s difficult to forecast prospects for the next season,” said Casper Burgering, a senior commodities economist at ABN Amro Bank NV in Amsterdam. “But I think the government is doing everything to keep up production.”