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Indian agri export to benefit from weather anomalies in Brazil, US

ICICIdirect Research 23 Aug 2022 DISCLAIMER

What's Buzzing:

The Brazil government cut sugarcane crop estimate for 2022-23 from 555 million tonnes (MT) to 514 MT due to dry weather conditions. Similarly, coffee crop is also continuing the adverse impact of last year’s drought & frost with the expectation of ~35-36 million bags production against 48 million bags in 2020-21.

Context:

Rare three-year long La-Nina events result in cooler ocean temperatures and global shifts of rains patterns resulting in less than normal rains in Brazil, US and higher than normal rainfall in the Indian Ocean region.

Our Perspective:

The lower than expected sugarcane crop in Brazil is likely to result in 2 MT cut in sugar production. Moreover, EU is also experiencing extreme drought like conditions adversely impacting beet crop & sugar production by another 2 MT. We believe India and Thailand would be only two major sugar exporting countries with surplus. This would ensure Indian millers export 7-8 MT of sugar in the 2022-23 season at a favourable sugar prices, in turn, holding sugar inventory of 5-6 MT at the end of September 2023 as well. This would keep domestic sugar firm above Rs 35/kg. Indian sugar industry is expected to produce sugar to the tune of 35.5 MT (after 4.5 MT diversion towards ethanol) and given consumption is expected to be ~28 MT, India would have surplus of ~7.5 MT for exports. Similarly, firm coffee prices would continue to benefit coffee plantation companies in India. We believe Indian agri exports will continue to benefit for a second consecutive year due to weather anomalies in Brazil and the US.

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