Sugar, cotton prices to trend higher

Acreage in Maharashtra has fallen 7.2 per cent, while Karnataka is down three per cent from a year ago Uttar Pradesh and Tamil Nadu has reported higher sowing

Sugar's spot price is up 40.7 per cent since last October, on expectation of tight supplies, in the next season. The Sugar season is from October to following September. Since the April, prices had traded sideways, due to government policies on sugar export and stock limits.

To stabilise prices, government decided to impose duty of 20 per cent on sugar exports and imposed stock limits for traders and wholesalers to avoid hoarding.

According to preliminary prediction was from the Indian Sugar Mills Association, output is down seven per cent in 2016-17 to 23.3 million tonnes (mt). But, sowing under sugarcane, according to the agriculture ministry, was up 4.8 per cent at 4.6 million hectares as of the second week of July. Acreage in Maharashtra has fallen 7.2 per cent, while Karnataka is down three per cent from a year ago Uttar Pradesh and Tamil Nadu has reported higher sowing.

In the current season, farmers in Maharashtra and Karnataka are continuing with the existing cane or ratoon crop due to drought conditions. The yield from ratoon will be lower. The lower production for second year could further widen the sugar deficit. However, due to strict import and export policies, the supply and demand will be in balance and we expect the NCDEX October 2016 sugar contract (current price: Rs 3,860) to trade between Rs 3,800-4,000 a quintal until clear production estimates are known.

Cotton spikes on multiple events

Cotton has jumped about 35 per cent in past two months on reports of lower domestic supplies, coupled with reports of slow sowing progress and pest attack in north India. Shortage in supplies can be attributed to lower production and higher exports compared to the previous year.

According to the Cotton Advisory Board (CAB), production for 2015-16 fell 12 per cent to 33.8 million bales while exports increased 51 per cent to 6.8 million bales. To meet domestic cotton demand, India might be importing nearly two million bales. One bale is 170 kg.

Slow progress in cotton planting, due to late monsoon might delay, arrivals in the new season. The demand-supply imbalance might stay until early November. In the current season, cotton area in north India, Maharashtra and Gujarat has declined 27 per cent, 19 per cent and 41.2 per cent, respectively. Overall, the area is down 22 per cent versus last years' acreage until the second week of July.

We expect cotton prices with a positive bias on reports of higher imports until the new crop arrives in October-November. More, the United States department of agriculture has forecast lower world production and beginning stocks for the 2016-17 season, due to lower production in Asia. Although the stocks in India are comfortable, stockists are holding on to the stocks on reports of pest attack, demand from textile units, and low progress of sowing. We expect the MCX October 2016 cotton contract (current price: Rs 22,270) to touch Rs 24,000 a bale in the medium term.

Source : Business Standard