Sugar stocks

Sugar stocks have fallen around 30% compared to highs in Jan 2010. A small analysis about why this sector has fallen over this period.

1. Overview of indian sugar market

* India is the world's top consumer of sugar and the biggest producer behind Brazil.
* Sugar, a politically sensitive commodity, is heavily regulated by the government.
* The government sets the price mills must pay farmers for cane. It also buys 10-20 percent of mills' output below market rates for subsidised sale to the poor and fixes the quantity each mill can sell in the open market.
* The governments of major producing states try to woo cane farmers, a sizeable chunk of their voters, by forcing mills to pay more than the floor price fixed by the federal government.
* India's sugar sector suffers from sharp cyclical swings. Lower output and higher prices trigger a rush to plant cane for the next season, leading to a glut every third year, forcing farmers to swith to other crops.



2. Current Scenario (Mar 2010)

* Sugar production for 2010 is more (17 mill tone) compared to estimated (14-15) due to higher sugarcane production.
* No plan from govt to impose import duty on sugar. Sugar from brasil can come in easily now.
* Global prices have gone down from $800 to $500.
* Brasil cane is more diverted to ethanol.
* Most mills have backup of cane (80%) bought at high prices. Realizations have droped from Rs.37 per kg to 32 per kg.
* Sugar production could increase in year starting Oct.2010.