Govt raises cane support price but rains key

New Delhi: India raised the cane support price by 7.1% on Friday to entice farmers to plant the crop in more areas, but traders and analysts said output would depend on adequate monsoon rains in key states.

Sugar output in the world’s largest consuming nation had slumped 44% last year to 14.7 million tonnes after the weakest monsoon in more than three decades hit the crop.

With annual demand running at 23 million tonnes, India bought large quantities of sugar from Brazil, the world’s top producer, sending New York-traded raws to a 29-year peak in February.

Improved outlook from Maharashtra and Uttar Pradesh, the top two sugar producing states, has calmed markets and domestic prices have come off by a third from early this year. New York futures dropped 0.5% on Thursday to 16.1 cents per lb.

“Monsoon rainfall over Maharashtra and Uttar Pradesh will be crucial for next year’s output,” said Veeresh Hiremath, a senior analyst with Karvy Comtrad.

Traders had been expecting the government to raise support prices to help improve domestic output.

The government set Rs139.12 ($3.13) per 100 kg of cane for 2010-11 and said in a statement the price was “fair and remunerative”. The support price for the previous season that ended last September was Rs129.84.

“The hike will motivate growers to plant more,” said Mukesh Kuvadia, secretary of the Bombay Sugar Merchants Association.

-Ratnajyoti Dutta