A number of five trade sources told Reuters that Indian traders for the first time have signed sugar export contracts five months prior to the shipments because aprobable fall in Brazil's production prompted buyers to secure supplies from the South Asian country in advance.
Owing to a drought and frost that has damaged the sugarcane crop in Brazil, which is the biggest sugarproducer and exporter in the world, sugar production is likely to drop.
Traders said “the likely decline has already lifted sugar prices near their highest levels in 3-years and it is prompting buyers to secure supplies in advance from India, the world's second biggest sugar producer.”
“So far, traders have contracted 500,000 tonnes of raw sugar for the shipments in December and January between $435 and $440 a tonne on a free-on-board (FOB) basis,” they said.
"Mills would start production after 3-4 months, but traders have sold new season raw sugar for December-January shipments in advance," Rahil Shaikh, managing director of MEIR Commodities India.
The rest four sources who confirmed the export agreements could not be named because of their company policies.
Indian traders usually sign contracts one or two months in advance, and only after the government announces the export subsidy for the overseas sales.
For the last three years,Indian mills, which are obliged by the government to buy sugarcane from farmers at a set minimum price, have only been able to sell competitively to exporters with the help of subsidies.However, in recent days, surging global prices has made sugar exports viablewithout government incentives.
The country has planned to export a record 7 million tonnes of sugar in the current 2020/21 marketing year ending on September 30.
According to a Mumbai-based dealer with a global trading firm, the uncertain weather in Brazil could create tightness in supplies during November to April in the world market, and there is a sense that buyers are focusing on procurement from India.
Brazil's food supply and statistics agency Conab said that “recent cold weather killed sugarcane plants in parts of the Centre-South region, exacerbating losses already caused by water stress.”
“Unlike Brazil, Indian mills mostly produce white sugar, but traders are encouraging them to produce raw sugar at the start of the season and contracting that quantity for export, said another Mumbai-based dealer with a global trading firm.”
"Mills need funds to make cane payments at the beginning of the season. They could make raw sugar and raise funds quickly," the dealer said.