Agri Commodities Preview: Average Cost Of Sugar Production Up Rs 3-4 Per Kg

Agri Commodities Preview: Average Cost Of Sugar Production Up Rs 3-4 Per Kg

Jan 20, 2017 09:01 IST capital market

During the current 2016-17 SS, sugar mills in the country have produced 104.80 lac tons of sugar till 15th January 2017, 5.92 lac tons less than the sugar production of last year on the corresponding date. As on 15th January 2017, 399 sugar mills are operating whereas in 2015-16 SS, 492 sugar mills were in operation on 15th January 2016.

In Maharashtra, a total of 149 sugar mills started crushing for 2016-17 SS. Till 15th January 2017, these 149 sugar mills have produced 31.43 lac tons of sugar, as compared to 172 mills who produced 43.79 lac tons last year same period. Out of 149 mills, 56 sugar mills have closed their operations by 15th January 2017 and remaining 93 mills are operating. Most of the sugar mills which have closed in Maharashtra are from drought affected districts namely, Solapur, Ahmednagar, Marathwada region and parts of Pune. Notably, the sugar mills in three major districts which will contribute about 40% of the State's sugar production this year, namely, Kolhapur, Satara and Sangli continue to crush sugarcane in full swing and most of them are expected to continue their operations till end of March 2017.

In Uttar Pradesh, 116 sugar mills are in operation during the current 2016-17 SS and these have produced 35.50 lac tons of sugar till 15th January, 2017, which is 31% higher than last year's production till 15th January 2016. In 2015-16 SS, as on 15th January, 2016, 116 sugar mills were in operation and they had produced 27.07 lac tons of sugar.

The other major sugar producing State viz. Karnataka has produced 18.50 lac tons of sugar till 15th January, 2017. In the current season 2016-17 SS, 61 mills operated, of which 21 mills have stopped crushing by 15th January 2017. In 2015-16 SS, 64 sugar mills which were in operation had produced 21.15 lac tons of sugar till 15th Jan. 2016.

The satellite images of cane area harvested and remaining cane in the fields across the country have been procured. On the basis of these images, a better idea of the acreage which is yet to be harvested is available. Trend of yields and sugar recoveries achieved till now are also being assessed. ISMA will review its first advance production estimates which it made earlier in September 2016, for 2016-17 SS in its next meeting to be held on 25th January 2017. Accordingly, as is the practice followed in last 6 years, ISMA will come out with its 2nd advance estimates.

In the first three months of the current sugar season viz. October to December, 2016, sugar mills have despatched/sold 59.8 lac tons of sugar in the open market whereas during the same period of last year 2015, mills had sold 65.3 lac tons, meaning that the sugar sales have dropped by 5.5 lac tons. Assuming that the demand may remain same as that in last year in the remaining 9 months of the season and/or slight improvement from the current level, total domestic sales in the country in 2016-17 SS could get restricted to around 245 lac tons, as against 248 lac tons despatched by mills in 2015-16 SS.

With the increase of cane price by State Governments like Uttar Pradesh, Uttarakhand, Punjab, Haryana, Bihar and Tamil Nadu and with withdrawal of subsidies/incentives given last year for cane payment, cost of production of sugar in these States have increased, as compared to 2015-16 SS. Furthermore, due to drought conditions in Maharashtra, Karnataka, Telangana and Tamil Nadu, capacity utilization of sugar mills during the current season have come down leading to increased per unit conversion cost of sugar.

Overall, the average cost of production of sugar on an all India basis has increased by Rs. 3 to 4 per kilo in the current 2016-17 SS over last year. The average cost of production will, therefore, works out to around Rs. 36.50 per kilo of sugar. All India average ex-mill price of sugar are hovering around Rs. 36 per kilo whereas the all India average cost of production of sugar is around Rs. 36.50 per kilo i.e. sugar mills are now able to recover their costs.

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