Sugar Final

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<p>What are Sugar futures? Sugar Futures are exchange traded contractual obligations to make or accept delivery of a specified quantity and quality of Sugar during a specified time in the future at a price agreed upon at the time the commitment is made. Through Sugar futures contract a Sugar mill or trader will be able to transact a series of contract set for a specified period of time in future say 8-10 months ahead in time for a standardized specification of Sugar (as per our contract) for a specified location of delivery but only the prices quoted by the buyers/sellers vary. Who are the main participants in Sugar Futures markets? There are three main types of participants in any futures markets. These are Hedgers Speculators and Arbitrageurs. Hedgers are users who like to reduce the price risk they face from potential price movements. Often, hedgers are willing to sacrifice the potential upside to gain certainty about prices. Speculators are participants who like to take directional view of future price movements and take on the risk that hedgers like to reduce. Arbitrageurs are participants who exploit price differentials on the same commodities / contracts that are traded on two different markets (for e.g. between futures prices in two exchanges).</p> <p>1</p> <p>Sugar Sugar (sucrose) is a carbohydrate that occurs naturally in every fruit and vegetable. It is the major product of photosynthesis, the process by which plants transform the sun's energy into food. Sugar is separated for commercial use from sugarcane and sugar beet in which it is abundantly available. Global Scenario World Sugar Production Sugar: World demand-supply ('000 tonnes, raw value) Opening stock Production Imports Total Supply Exports Domestic consumption Closing stock Stock-to-use ratio 1999-2000 2000-01 2001-02 2002-03 32,372 36,133 37,424 33,989</p> <p>136,531 130,495 134,888 147,336 36,073 38,646 37,695 39,169</p> <p>204,976 205,274 210,007 220,494 41,448 37,686 41,228 45,724</p> <p>127,395 130,164 134,790 137,725 36,133 21.4 37,424 22.3 33,989 19.3 37,045 20.2</p> <p>Major producers-Brazil, India, EU Sugar is produced in 115 countries. Sugar is extracted from two different raw materials sugarcane sugar beet</p> <p>2</p> <p>Sugarcane is cultivated under tropical climates, while sugar beet is grown in temperate regions. Around 75% of the sugar produced in the world is from sugarcane, with beet sugar accounting for the rest. Sugar : Sugar producing country profile Total number of countries Produce from cane only 115 Brazil, India, European Union Brazil, India, Thailand, Australia, Cuba European Union, US, Turkey, Ukraine, Poland and Russia</p> <p>67</p> <p>Produce from beet only</p> <p>39</p> <p>Produce from cane and beet World Sugar Trade</p> <p>9</p> <p>-</p> <p>Sugar is a widely traded commodity in international markets. 70% of world sugar production is consumed in country of origin; only the balance 30% sugar is traded in international markets. The distortions in world sugar are: Small percentage of free sugar trade as compared with total world production Various policies of governments of sugar producers have impact on sugar production and trade Production of 40% of sugar is highly subsidized. World sugar prices are significantly below the average cost of production because of various trade protective policies used by various countries (refer Table below) Domestic prices of 90% of the sugar sold are higher than the international prices.40% of world sugar production is sold in international markets at prices 50% to 400% higher than the prices in international market.</p> <p>3</p> <p>Sugar: Forms of support adopted by different countries Minimum Minimum Import support price for sugar EU USA Export Other forms of Support Australia Brazil EU USA Columbia Cuba Mexico Thailand S. Africa Turkey India sugarcane Controls Subsidies support price India Brazil EU EU China USA Japan Thailand Turkey EU USA Cuba Turkey S. Africa Thailand China Japan USA CUBA South Africa Turkey India</p> <p>EU: European Union Source: CRIS INFAC Note: This is only an indicative list Production of sugar in the world is not responsive to change in prices Perennial nature of sugarcane crop - around 75% of the world area is under sugar crops. Ratoon crop grown by sugarcane producers due to which it is extremely difficult to match sugar production with price conditions Lengthy gestation period for investments in sugar manufacturing and refining Production of sugar is sensitive to weather conditions Export concentration Sugar export is concentrated among a small group of countries- just 5 countries account for around 66% of world sugar trade Major Exporters of sugar - Brazil, EU, Thailand, Australia, Cuba Leading exporters are leading producers of sugar Limited number of key sugar exporters makes the world prices heavily dependent on the demand-supply position of these countries Production status of sugar in key exporting countries affects world sugar prices Varying dependence of sugar exporting countries on exports Although Brazil is the largest producer of sugar in the world but it is not the heaviest dependent on sugar exports due to its ethanol programme. Amongst major sugar producers, Australia is the most heavily dependent on exports. The following table shows the dependence of sugar producing countries on exports:</p> <p>4</p> <p>Sugar : World Exports Production Million Tonnes, raw value India Australia Brazil China Cuba European Union Mexico Thailand USA 22,100 5,371 23,810 10,637 2,000 18,675 5,229 7,303 7,600 Exports Million Tonnes, raw value 1,950 4,220 14,000 120 1,350 5,600 46 5,100 129 8.82 78.57 58.80 1.13 67.50 29.99 0.88 69.83 1.70 Exports as a % of Production</p> <p>Source: USDA and CRIS INFAC</p> <p>Data pertains to 2002-03</p> <p>Import diversification Sugar import is diversified over more than 100 countries. The import requirements of around 100 countries have to be added up to arrive at the quantum of exports by the top five exporters. This reflects the widely dispersed nature of imports Major Importers of sugar - Russia, Indonesia, EU, Japan, USA, Korea, Malaysia, China, Algeria, Iran etc Import duties imposed to curb imports and offer protection to domestic production. The world average of import duties is estimated to be around 79%. India has an import duty of 60% plus a countervailing duty of Rs 910 per tonne Declining share of beet sugar production. The beet sugar production is declining and also the cost of production of sugar from beet is costlier than the sugar produced from cane. Differences in rate of growth of sugar consumption between various continents Impact of WTO on world sugar trade Liberalisation of the world sugar industry under the WTO is not expected to adversely affect the Indian</p> <p>5</p> <p>sugar industry. In India, the sugar imports could be reduced marginally, from the current level of 60%. (At present, the customs duty in India is lower than the WTO bound rate of 150%, and the customs duty of most developed countries is higher) With the likely removal of the levy quota and quarterly free-sale quota release systems imposed on the domestic producers, restrictions on sugar imports would also have to be removed. As a result, sugar prices in India would be aligned with the international prices of sugar. Given the likely increase in world sugar prices, with the liberalization of the world sugar markets, import pressures could be lower in India. Hence, domestic prices of sugar could increase. In the long term, export opportunities for efficient Indian sugar producers would increase. Slow response of demand - supply with respect to changes in prices Most of sugar consumption is in developed countries Developed countries have low or nearly zero price elasticity because sugar consumption accounts for a marginal proportion of their disposable income Consumption of sugar in developed countries is in processed food form and the corporate buyers of sugar in these countries ( food processors like soft drinks, biscuits, confectionary producers) are more concerned with preserving the market shares of their products than the price of raw material, sugar Indian Scenario India has been known as the original home of sugar and sugarcane.Indian mythology supports the above fact as it contains legends showing the origin of sugarcane. In global sugar economy, the Indian sugar industry has achieved a number of milestones. Largest Sugar Producer in 7 out of 10 years Second Largest Area under Cane/Cane Production Amongst the cost-effective industries with its field cost</p> <p>6</p> <p>(Sugar cane) being the second lowest, despite small land-holdings and low productivity Fourth efficient processor of sugar despite low capacity of its sugar plants as compared to very largesize plants in other parts of the world. Sugar: India's share in global production (Million tones) Global production India's production Indias production as a % of global sugar production 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 127.0 133.4 136.2 130.0 135.2 143.0 14.0 16.9 19.8 20.1 20.1 21.6 11.0 12.7 14.5 15.5 14.8 15.1</p> <p>Source: International Sugar Organization</p> <p>Indian Sugar IndustryNo. of Sugar factories established Total Capital Employed Total Annual Turnover Total Payment to Cane growers Contribution to Central &amp; State Exchequers Direct Employment: Rural Educated Farmers / Families involved in Sugarcane (7.5% of Rural Population) Rs. 1700 Crores+ 800 Crores 5.00 Lakhs 507 Rs. 50,000 Crores Rs. 25,000 Crores Rs. 18,000 Crores</p> <p>45 Million</p> <p>The Indian Sugar industry is the second largest agroprocessing industry in the country. It can be broadly classified in to two sub sectors, the organized sector i.e., sugar factories and the unorganized sector i.e. manufacturers of traditional sweeteners like gur and khandsari.</p> <p>7</p> <p>INDIAN SUGAR INDUSTRY</p> <p>Organized Sector (Sugar)</p> <p>Unorganised / Traditional Sector (Gur &amp; Khandsari)</p> <p>Co-operatives</p> <p>Private</p> <p>Public Agronomic Suitability /Geographic Location Sugarcane (Saccharum officinarum) is the main source of sugar in India and holds a prominent position as a cash crop. It accounts for 60-65% of the cost of production of sugar. India is the second largest producer of sugarcane next to Brazil. Presently, about 4 million hectares of land is under sugarcane with an average yield of 70 tonnes per hectare. Sugarcane Production Sugarcane production depends on the sugarcane area under cultivation and the sugar yield. The total sugarcane area under cultivation depends on: Profitability of sugarcane cultivation compared with that of alternate crops Weather conditions during the previous and current seasons Rationing Promptness in the payment of the sugarcane dues of the previous sugar season Overall sugarcane yield would depend on Type/variety of seed used Extent of ratoon crop Weather conditions/climate during the sugar season</p> <p>8</p> <p>Soil conditions Availability of water Weed, pest and disease control Sugarcane Crop features Sugarcane is a tropical crop grown in a frost-free and warm climate (high temperatures for at least 8 months). The crop grows for 8-24 months, depending on the climate. (In general tropical varieties are adapted to an 18-36 month growing period, while subtropical varieties are adapted to a 9-12 month period.) It grows best on medium heavy soils, but can also be raised on lighter soils and heavy clays, provided there is adequate irrigation available in the former type of soils and drainage is good in the latter type of soils. The crop grows best in the tropical regions receiving a rainfall of 750 to 1200 mm. Sugarcane is planted vegetatively, wherein a one metre piece of sugarcane is laid end-to-end in a row, with plants forming on the nodes of the sugarcane. In order to facilitate cultivation and easy use of herbicides for early weed control, the planting is done in rows about 6 feet apart. With plants becoming taller, the lower leaves along the stems ultimately drop off and only leaves toward the top remain green and active. The stems have a hard, thin, outer tissue or rind and a softer center between the nodes. The high sugar containing juice is in this centre whose sweetness is measured by sucrose content of the cane. Sugarcane Crop in India India had ideal conditions for growing sugarcane at a low cost, such as tropical climate, easy availability and low cost of labour, and low cost of irrigation facilities. More than one crop is harvested from a planting and after the first crop is removed, two or more so-called stubble crops (ratoons) are obtained.</p> <p>Planting season normally starts in between February to April, harvesting starts from the following October and crushing starts in October, peaks in January and continues till March. In India, around 90% of the sugarcane cultivation is under irrigated land. The irrigated area under sugarcane</p> <p>9</p> <p>cultivation accounts for around 5 % of the total irrigated area. Water intensity of sugarcane Sugarcane is a very water intensive crop. It is second to paddy in water requirements as shown below:Crop Water required (inches) Paddy Sugarcane Cotton Ragi Groundnut 51 40 21 21 16 2 hours 2 hours 5 hours 3 hours 4 hours Once in 3 days for 4 months Once in 3 days for 4 months Once in 14 days for 4 months Once in 14 days Once in 14 days for 4 months One/two crops One crop One crop One in rainy season One crop Duration Frequency No. of crops per year</p> <p>State wise sugar profile In India the major sugarcane producing areas are Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu and Uttar Pradesh. These states account for 85-90% of the sugarcane produced in India.</p> <p>Major sugar producing states - Maharashtra, UP , Karnataka, Tamil Nadu, Gujarat, &amp; AP</p> <p>10</p> <p>Sugar : Statewise ProfileAP Area ('000 ha) Yield (tonnes/ha) Cane crushed ('000 tonnes) Duration of crushing (days) Sugar recovery rate (%) Cane production ('000 tonnes) Sugar production ('000 tonnes) 1210 1868 6219 1644 5651 234 65.8 Karnataka 385 84.4 Maharashtra TamilNadu 599 61.8 284 106.8 UP 1852 62.8</p> <p>11980 130 10.10 15387</p> <p>17303 157 10.79 32479</p> <p>53441 122 11.64 37015</p> <p>16645 173 9.88 30282</p> <p>59271 158 9.53 116324</p> <p>Data pertains to 2002-03</p> <p>Production Process and By-products Sugar is primarily extracted from sugarcane and beet. The difference between the production processes of sugar from the two raw materials is minor. In India the process of manufacturing sugar is as follows:</p> <p>Sugarcane pressmudExtraction of juice</p> <p>BagasseClarification of juince</p> <p>Cogeneration of power</p> <p>Evaporation</p> <p>Pan-boiling</p> <p>Crystallisation</p> <p>Centrifugation</p> <p>Recovery</p> <p>Molasses</p> <p>White sugar</p> <p>Industrial &amp; Potable Alcohol</p> <p>11</p> <p>Extraction of the cane juice from the sugar cane, usually by crushing the sugar cane (at this stage the sweet juice contains many impurities - the soil from the fields, some small fibers and green extracts from the plant) After settling out much of the dirt and other impurities, the juice is thickened into syrup by boiling off much of the water (evaporation) The syrup is...</p>

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