One look at the February 2021 Large Scale Manufacturing Index (QIM) would tell you that the outcry over sugar demand-supply gap is overplayed. National sugar output during Nov 20 to Feb 21 is not only 29 percent higher over last year but is also the highest ever. Why then all the sensationalism over government entering procurement and fixing ex-factory price of sugar?
Because millers would tell you that a 15 day early start to the crushing season has botched up the entire crushing season. While it is intuitive that early beginning must also translate into early peaking, can 15 days early start lead to reduced output? According to the industry, the unfortunate effects of early crushing are already becoming visible. Share of February in seasonal output (Nov to Feb) at just 28 percent was lowest over last decade, compared to average 37 percent during the period.
In fact, historically, monthly output during February is at least 1.5 times that of monthly output for December, which fell to just 1.05 times during 2020-2021 season. That means month on month output is already on a downward trend, with Feb 2021 recording the single largest month-on-month decline against same period. So, what will the future hold in store for March 2021 sugar LSM?
To understand that, look no further than historic output during April. Consider that if the peak sugar production month has moved back due to early crushing, it only stands to reason that output for March would look a lot like historic output in April. It may also be fair to assume that 15 additional operating days in November will have translated into fewer days of operation during March, in effecting making March 2021 look a lot like the spasmodic production that takes place during first 15 days of April historically.
Now add to the fact that historically, output during April is no more than one-third of monthly output for March. In the case of 2020-21 crushing season, that preceding month would be February. Therefore, it may be safe to bet that March 2021 production would be no more than one-third of Feb 2021; which incidentally makes the share of aggregate production for November 2020 and February 2021 in total seasonal output look a lot like historic share of March monthly output in total season’s production: twenty percent.
But what does this chartist version of month-wise cyclicality in sugar output mean? That despite second-highest crop, seasonal output will be no more than 6 million tons at best, still third-highest ever but a far cry from the surplus of 6.5 million tons predicted earlier. And if the second prediction stands the test of time in the upcoming LSM report card for March 2021, you can trust that the slowdown in retail sugar prices in recent weeks is the fleeting calm before the storm. Fingers crossed.