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Thursday, March 24, 2011

Indian Government set to allow Export of Sugar

The sweetener is a paradox – in some years after a good harvest, we are in a position to export and in other years, we become a major importer of the product, when the domestic crop is poor.

Sugar is sucrose, a carbohydrate found in every fruit and vegetable.  All green plants manufacture sugar through photosynthesis,  the process by which plants transform sunlight  into their food and energy supply. The origin of sugarcane is placed to thousands of years ago.  Annals of Alexander make mention of sugar in about 325 BC referring to a reed that yielded honey without bees.  In earlier days, it was a scarce luxury, a modern day necessity….

There are optimistic reports that Indian output in 2010/11 will be close to 25 million tonnes as against the domestic consumption of around 22 million tonnes.  Thus there is to be excess sugar output than domestic consumption, paving way for additional exports. 

Traditionally, Indians like sweet and sugar is prime requirement of every household starting from morning coffee to much more….. other than domestic consumption, there are bulk consumers like bakeries, sweet makers, biscuit makers, soft drink manufacturers and more.  This makes India top the list of consumer besides being the second largest producer. 

In India, the sugar is extracted from sugarcane, tall perennial grasses of the genus Saccharum (family Poaceae, tribe Andropogoneae). These canes have stout, jointed, fibrous stalks that are rich in sugar, and measure two to six meters tall.  Sugar cane products include table sugar, molasses,  bagasse and ethanol.

Sugar mills are mostly seasonal industries with crushing starting from October onwards and peaking in January, generally ending in March or April – and depending upon the availability of supply could run longer also.   The Govt. fixes the price at which cane can be purchased from the farmers – it is 145 per 100 kg. The sugar prices had declined during the last 2 months with uncertainty over exports permission also contributing.   Some States also provide transport subsidy for every tonne of excess sugarcane sent for crushing.  There exist some problem due to the capacity of the sugar mill as also the problems in storage which could push the price down, if excess quantity is crushed. 

Reportedly the prices have gone up by 3.19% with the announcement of export of 5 lakh tonnes of sugar under OGL.  This announcement comes after a long delay of nearly three months. Centre  has also decided to increase the stockholding limit for a trader to 500 tonnes from 200 tonnes.

The unrestricted permission for exports is expected to benefit the trader as the global prices are higher by around Rs.200/- per quintal as compared to domestic rates.  The Food Ministry is likely to distribute the quota of 500000 tonnes among the Sugar mills on the basis of their 3 years’ average output or two years average production in case a mill has not been in operation for that period.  Any mill set up in 2010-11 will not be eligible to export.  The export is also dependent on the present year’s output and food inflation.   Though the destination is not clearly identified, the demand from the Middle East has been strong.

Sugar is also extracted from commercially grown Sugar beet, a cultivated plant of  Beta vulgaris,  whose root contains a high concentration of sucrose. The sugar comes from the tuber of the beetroot plant, chard and fodder beet. The European Union, the United States, and Russia are the world's three largest sugar beet producers. Mackay is widely noted as the "sugar capital" of Australia, producing a sizeable portion of Australia’s domestic supplies and exports.  Mackay Harbour is also home to one of the largest bulk-sugar loading terminals in the world.

You often see attractive packets of sugar in super market and there are bagged also.  But when transported over sea, it is generally transported in bulk.  They are placed on holds of specialized ships and discharged by means of very large "spoons" – and placed on tapes, the tapes take the grain to a silo. A silo is a tall cylindrical structure built for storing grain. Or Trucks are placed under very large funnels, the "spoon" drops the grain into the funnel and then a hatch, at the bottom of the funnel, is opened and there goes the grain, directly into the truck. They are vaccum suck also for unloading or done by grabbers.

Whilst all this is about the physical activity, there is also online trading on sugar as a commodity.  The rate of 100 kgs as at 20/4/11 is Rs.2765/- as at 20th may is Rs.2846/- and as at 20th June is Rs.2911/- clearly indicating that the rates are going to rise in the coming months.    Commodities are the things of value that are available in huge quantities.  Online trading (just as trading on shares, gold and silver) on agricultural produce like corn to natural resources like oil is done on mercantile exchanges of London & NY. 

There is also the future trading and trade on perishable are most volatile.  Money can be made or lost depending on your research, the extent of investment, your knowledge of history and future market trends and above all element of luck.  Those involved in the trade are necessarily the ones who have a need for the commodity but could be speculators aiming to make a profit predicting the movement.  It is more of paper purchase and sale without real need or even when the quantities are non-existent.

This known as Futures contract is a commitment to buy a  commodity with an inherent value at the date specified. It's used by the people who produce those commodities to regularize their income streams and protect themselves from excessive market volatility. 

Any kind of product that's produced in large quantities with regular production cycles, lead times of more than a month, seasonable variations in availability and price, and near constant demand for the raw material can be the subject of a futures contract. Futures can be thought of as agreements to sell or buy commodities at a specified price in the future, regardless of the market conditions.  Unlike stock portfolio or bond investing, you aren't buying a chunk of a corporation or a debt commitment to be paid back with interest, you are  taking a gamble on the future price of a commodity. Futures trading is risky, as is any kind of investment,  but experts would say that when spread on a diversified portfolio, it is most likely to yield positive results. 

With regards – S. Sampathkumar

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