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Futures trading in sugar suspended
Prices likely to fall
Ruchika M Khanna
Tribune News Service

Chandigarh, May 26
Commodity market regulator Forward Markets’ Commission has suspended trading in sugar contracts from tomorrow till December 31. The move is expected to cool down the sugar prices, which had gone up by almost 45 per cent in the past two months. The high price of sugar had become the talking point during the Lok Sabha elections.

As per the directive issued by the commission, the existing sugar contracts would be available for squaring off the existing outstanding trade only. No new positions would be allowed to build up in the existing contract, and no new contract would be launched till December 31. According to information available, the forward contract for sugar on the NCDEX for June was Rs 2,306 per 100 kg today - the last day of the sugar trading, before the trading suspension orders were announced.

Similarly, the forward contract for sugar on the MCX for June today was Rs 2,470 per 100 kg lot. A total of 115 lots were traded on the Multi Commodity Exchange (MCX) . According to Joseph Masih, managing director and chief executive officer of MCX, any such prohibitive orders create a negative sentiment in the market. “Though the forward trading has been de-activated till December, the move is restrictive and will affect the market adversely,” he said.

It may be noted that the sugar price has gone up from Rs 14 per kg in March 2007 to Rs 28 per kg now. In certain places, the prices have shot up to Rs 30 per kg. The production shortfall of five million tonnes in sugar is the main reason for driving up the sugar prices. As against a consumption requirement of 22 million tonnes, the total sugar output in the country is just 17 million tonnes this year. With the area under sugarcane being diverted for high yielding crops like wheat and paddy in most states, the sugar production has taken a hit.

Interestingly, this production shortfall in sugar is not just driving up the prices in the domestic market, but also in the global market. With large area under sugarcane production in South America having been diverted to bio fuel cultivation, a global deficit of 3.5 million tonnes is projected for 2008-09. The decline in area under sugar cane cultivation in India has added to the global shortfall in sugarcane production.

According to sources in the industry, over the past two years sugar prices had remained stable. This was because in 2006-07 and 2007-08, supply of sugar was more than its demand by more than five million tonnes. Though the government has initiated steps to increase the domestic supply by importing raw sugar and imposing stock limits on sugar manufacturers and traders to prevent hoarding, it has so far failed to bring down prices.