Production will probably drop 6.4 percent to 23.5 million metric tons in the year that began on Oct. 1, the smallest since 2009-2010, the median of 12 trader, producer and analyst estimates compiled by Bloomberg show. That’s less than the 25 million tons forecast in September by the Indian Sugar Mills Association, set to revise the outlook in the next two weeks.

Lower output will trim the biggest domestic reserve in five years and reduce the surplus for exports, helping cut a global glut and record losses at producers including Bajaj Hindusthan Ltd. (BJH) and Shree Renuka Sugars Ltd. (SHRS) Reduced Indian supplies amid a threat to the Brazilian crop from drought may boost prices, according to Newedge Group in New York.

“Lower Indian production is constructive for prices and the trend in prices is changing,” Michael McDougall, a senior vice president at Newedge, said by phone. “Financial issues with Indian producers will cut cane planting for next season.”

Prices in New York may climb to 17 cents to 17.5 cents a pound by the end of March, McDougall said. Raw sugar for May delivery jumped 3.2 percent to 16.5 cents a pound on ICE Futures U.S. yesterday. Futures rose 0.6 percent in 2014 after a combined 49 percent loss in the previous three years. White, or refined, sugar advanced 2.6 percent to $455.90 a ton on NYSE Liffe inLondon yesterday.

Global Surplus

World output will be 2.1 million tons bigger than consumption in the 2014-15 season that starts in October, a fifth year of surpluses, says Kingsman SA, a unit of McGraw Hill Financial Inc.’s Platts. High inventories and a large surplus in 2013-2014 will combine with benign weather in most producing countries and a “strong” crop in Thailand will limit price gains, according to Goldman Sachs Group Inc.

Production in Uttar Pradesh, India’s biggest cane grower, will drop to 6.5 million tons this season from 7.5 million tons a year earlier, Balrampur Chini Mills Ltd. (BRCM) said Feb. 6. Mills in the state reported a 6 percent to 7 percent decline in yield this year and production slumped 18 percent to 3.57 million tons as of Feb. 15, according to the association.

Northwest India, a region including Uttar Pradesh, received 9 percent more monsoon rain than normal between June and September, according to the India Meteorological Department. Cane crushing was delayed this season because of a shutdown by mills including Bajaj Hindusthan and Balrampur Chini, demanding aid to pay state prices to growers.

Crushing Delay

“There will be a major decline in Uttar Pradesh because of falling yields caused by prolonged rainfall,” said Rohit Agarwal, an analyst with SPA Securities Ltd. in Kolkata. “The delayed start in crushing will also reduce production.”

Output nationwide fell 13 percent to 14.4 million tons in the four months through January, according to the association.

The government announced subsidy for exports and interest free loans to help mills pay dues to farmers before general elections due by May. Producers owed farmers about 120 billion rupees ($1.93 billion) in arrears at the end of January, the association said yesterday.

India plans to subsidize exports of 4 million tons of raw sugar in the next two years and the cabinet set 3,333 rupees a ton as the financial allowance for February and March, with the amount due to be reviewed in April.

Switching Crops

About 65.4 percent of the cane produced in India may be crushed to make sugar this year, according to SGS SA, which used the average extraction rate of 10.24 percent between 2000-2001 and 2012-2013 reported by the cooperative producers. The rest will be used for livestock feed, seeding and jaggery, a local sweetener, according to a farmers survey it conducted forBloomberg News from Sept. 25 to Oct. 31.

“Diversion to jaggery will increase from now onward because of the arrears,” Avdhesh Mishra, president of the Cane Committees’ Association, a grouping of farmers, said by phone from Gorakhpur in Uttar Pradesh. “The worry is about the next year’s crop as farmers are not interested due to arrears. There will be diversion to other crops including wheat and rice.”

To contact the reporters on this story: Pratik Parija in New Delhi at pparija@bloomberg.net; Prabhudatta Mishra in New Delhi at pmishra8@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

http://www.bloomberg.com/news/2014-02-18/sugar-crop-tumbling-to-four-year-low-in-india-to-cut-global-glut.html

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