New York: India is throwing its extra sugar on the world, threatening to push prices further down which are already at their lowest for nearly a year.
The Indian government is spending 62.68 billion rupees ($ 873 million) to subsidize exports in an attempt to reduce the country’s record stocks. The move is angering rival producers in Brazil and Australia, who say the policy lowers world prices and harms their farmers. Meanwhile, hedge funds are betting that the declines in futures will continue.
Subsidies are just another blow to the market which is already suffering from oversupply. The weakening of the currency in Brazil, the world’s largest producer and exporter, encouraged an influx of shipments. Meanwhile, demand growth is slowing in developing countries due to health concerns, and threats to the global economy could further hurt consumption. Even though global stocks are expected to decline, the excess treasury is still large enough to meet the annual consumption of India and the European Union, the major consumers.
“Global stocks are still pretty high, and have been for several years,” said Darwei Kung, head of commodities and portfolio manager at DWS Investment Management Americas Inc., which oversees $ 2 billion.
During the week ended August 27, fund managers increased their net short position by 10% to 171,606 futures and options, data from the US Commodity Futures Trading Commission showed on Friday. The number, which measures the difference between bets on an increase in price and bets on a decrease, was the most bearish since May.
Short positions only climbed for a fourth straight week.
India is not the only producer to increase global supply. Thanks to the new trade deal between the United States and Mexico, the Latin American country is likely to push even more sweetener offers into the market.
Under the new agreement, the amount of sugar that Mexico can ship to the United States has been reduced. This comes at a time when the first country already has large stocks and “the warehouses are full,” said Pablo Sherwell, head of food and agribusiness research for Rabobank International. As a result, Mexico will likely attempt to export up to 500,000 metric tonnes to the global market to free up storage space before the next season begins on October 1, he said.
Still, there are reasons bulls shouldn’t give up hope. In Brazil, more sugar cane is used to produce ethanol, which could reduce the production of the sweetener. Adverse weather conditions may adversely affect crops in other regions, and analysts at Citigroup Inc. and Rabobank International predict the market will eventually run into deficit.
“People look at India and think the outlook is not particularly bright,” said John Stansfield, analyst at Sopex Group in London. “Gradually, it will become evident that the Indian harvest will not be as large and that the harvest is also affected in Europe by bad weather. But overcoming the oversupply in the short term is another matter.
Read also : Modi’s government extension of sugar export incentives risks upsetting Australia and Brazil
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