INDIA: Worst monsoon in three years to hit sugar

Published: 06/29/2012, 8:18:01 AM

The worst start to the monsoon season in India in three years is threatening crops from rice to sugarcane, stoking concern that the nation may limit exports to preserve supplies. Soybean futures in India climbed to the highest since 2003 and maize rose to a five-month high, according to Bloomberg.

Rainfall from June to September, which represents 70% of annual amount, may be below normal with the main cane-growing regions getting less rain than required, said Michael Ferrari, a commodity director and senior scientist at Falls Church, Virginia-based Computer Sciences Corp. Rain is 23% below average since the season started on June 1, according to the India Meteorological Department.

Dry weather from the U.S. to Australia has parched fields, pushing up corn and wheat prices by as much as 17% this month in Chicago, curbing a decline in global food costs. El Nino weather conditions, which can parch Asia and bring cooler weather to the U.S, may develop some time during July to September, the World Meteorological Organization said June 26. India extended a ban on exports of sugar, rice and wheat in 2009, following the weakest monsoon since 1972.

"Every day is a cause of concern until the rains come to the growing regions," said Faiyaz Hudani, senior analyst at Kotak Commodity Services Ltd. in Mumbai. "If the rains are bad, then the summer crops could be delayed, yields would be lower and the quality could be impacted."

Sugar cane will be hit by a less than normal rainfall this year, Ferrari from Computer Sciences said, joining Morgan Stanley in raising concerns over India's crop prospects.

"The global supply-demand expectations for a favorable supply balance are largely dependent on a good sugar crop coming from India, and there is some risk that production projections might come up short, adding upside price risk," Ferrari said in an e-mail. "Since domestic demand for sugar is so strong, a government ban on exports is certainly a possibility."

"The slow early progress of the monsoon has begun to raise concerns over new crop production prospects, particularly in drought-stricken Maharashtra," Morgan Stanley said on June 25.