factors_affecting_rise_in_commodity_prices_-_sugar_final

8/7/2019 Factors_affecting_rise_in_Commodity_prices_-_Sugar_Final

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To study FactorsTo study Factors

affecting rise inaffecting rise in

Commodity PricesCommodity Prices

e.g. Sugare.g. Sugar


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AgendaAgenda

IntroductionIntroduction

Literature ReviewLiterature Review

Research MethodologyResearch Methodology

Data Collection & AnalysisData Collection & Analysis

ConclusionConclusion


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What is Commodity?What is Commodity?

A commodity can be defined as a product or material or any physical substanceA commodity can be defined as a product or material or any physical substance

like food grains, processed products and agrolike food grains, processed products and agro--based products, metals orbased products, metals or

currencies, which investors can trade in the commodity marketcurrencies, which investors can trade in the commodity market Its price is determined as a function of its market as a wholeIts price is determined as a function of its market as a whole

Commodities actually offer immense potential to become a separate asset classCommodities actually offer immense potential to become a separate asset class

for marketfor market--savvy investors, arbitragers and speculatorssavvy investors, arbitragers and speculators

What is Commodity Market?What is Commodity Market?

A commodity market is a market where various commodities and derivativesA commodity market is a market where various commodities and derivatives

products are tradedproducts are traded

Sugar as a CommoditySugar as a Commodity

Sugar is a basic necessity for every human being.Sugar is a basic necessity for every human being.

Major Sugar producing areas in India are Andhra Pradesh, Assam, Bihar, Gujarat,Major Sugar producing areas in India are Andhra Pradesh, Assam, Bihar, Gujarat,Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa etc.Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa etc.

Factors influencing Sugar MarketsFactors influencing Sugar Markets

PricePrice

Consumer IncomeConsumer Income

Changing eating habitsChanging eating habits


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IntroductionIntroduction


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Indian sugar industry, second largest agroIndian sugar industry, second largest agro--based processingbased processingindustry after the cotton textiles industry in country, has aindustry after the cotton textiles industry in country, has alion's share in accelerating industrialization process andlion's share in accelerating industrialization process andbringing sociobringing socio--economic changes in under developed ruraleconomic changes in under developed ruralareas.areas.

Sugar Industry in India is well developed with a consumerSugar Industry in India is well developed with a consumer

base of more than billions of people.base of more than billions of people. India is the largest consumer of sugar in the world.India is the largest consumer of sugar in the world.

Sugar industry covers around 7.5% of total rural populationSugar industry covers around 7.5% of total rural populationand provides employment to 50 million rural people. Aboutand provides employment to 50 million rural people. About4.5 crores farmers are engaged in sugarcane cultivation in4.5 crores farmers are engaged in sugarcane cultivation inIndia. Sugar mills (cooperative, private, and public) have beenIndia. Sugar mills (cooperative, private, and public) have been

instrumental in initiating a number of entrepreneurialinstrumental in initiating a number of entrepreneurialactivities in rural India.activities in rural India.


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Literature ReviewLiterature Review


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The impact of the Global Economic Crisis on the sugarThe impact of the Global Economic Crisis on the sugar

industry is not as direct as its effects on other industries. Still,industry is not as direct as its effects on other industries. Still,

the slowdown had its own share of contribution to the direthe slowdown had its own share of contribution to the dire

conditions faced by the sugar industry at present.conditions faced by the sugar industry at present.

To explain the impact of the crisis on the industry one has toTo explain the impact of the crisis on the industry one has toconsider several other factors.consider several other factors.

The main factors that affect the price of sugar commoditiesThe main factors that affect the price of sugar commodities

are the demand for sugar and supply of sugarcane. Over theare the demand for sugar and supply of sugarcane. Over the

year these two factors have actively contributed to the priceyear these two factors have actively contributed to the price

changes but later on an additional factor has taken shape duechanges but later on an additional factor has taken shape dueto globalization, i.e. cost of processing or production.to globalization, i.e. cost of processing or production.


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Due to the factors mentioned in previous slide, the prices ofDue to the factors mentioned in previous slide, the prices ofsugar have been following a sugarsugar have been following a sugar--price cycle.price cycle.

This cycle explains how variation in sugarcane availabilityThis cycle explains how variation in sugarcane availabilityaffects the production of sugar as well as the global sugaraffects the production of sugar as well as the global sugarprices, which in turn affects future sugarcane cultivation.prices, which in turn affects future sugarcane cultivation.

SugarSugar--price cycle also includes the returns from sugar tradeprice cycle also includes the returns from sugar tradewhich in turn accommodates the processing or productionwhich in turn accommodates the processing or productioncosts of borne by the sugar industry.costs of borne by the sugar industry.


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Cause Effect:Cause Effect:Major reasons have caused this effectMajor reasons have caused this effect

Growing demand in Brazil for diversification into EthanolGrowing demand in Brazil for diversification into Ethanolproductionproduction

Fall in production output from India i.e. we are short by 4.5Fall in production output from India i.e. we are short by 4.5million Mt in inventories compared to previous years.million Mt in inventories compared to previous years.

Inconsistent rains.Inconsistent rains.

Exports.Exports.

Fluctuations in sugarcane production due to inadequateFluctuations in sugarcane production due to inadequateirrigation facilities, lower sugarcane yield, and frequentirrigation facilities, lower sugarcane yield, and frequentdroughts in tropical and subdroughts in tropical and sub--tropical areastropical areas


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Research MethodologyResearch Methodology


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Type of ResearchType of Research Fundamental AnalysisFundamental Analysis

-- Technical AnalysisTechnical Analysis

DataData-- Secondary DataSecondary Data


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Effects of external factors on sugar pricesEffects of external factors on sugar prices

H0:H0: There is a significant effect of external factors on sugar pricesThere is a significant effect of external factors on sugar prices

H1:H1: There is no significant effect of external factors on sugar pricesThere is no significant effect of external factors on sugar prices


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Data AnalysisData Analysis


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Data Analysis

Data Analysis


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Indian Industry ScenarioIndian Industry Scenario

India is the largest producer and consumer of sugar in the world.India is the largest producer and consumer of sugar in the world.Despite record production by the agriculturists and industrialists,Despite record production by the agriculturists and industrialists,

neither of them were able to benefit from increased production onneither of them were able to benefit from increased production on

account of high operative costs, which are not even sufficient to coveraccount of high operative costs, which are not even sufficient to cover

the prevailing international prices, leave alone the profit marginthe prevailing international prices, leave alone the profit margin..

Global ScenarioGlobal Scenario

The global sugar Market is also experiencing a scenario of sugar deficit,The global sugar Market is also experiencing a scenario of sugar deficit,

as production has failed to meet the consumption for two consecutiveas production has failed to meet the consumption for two consecutive

years. The sugar production is expected to bounce back this season dueyears. The sugar production is expected to bounce back this season due

to the increased capacities in Brazil and India. Consumption is alsoto the increased capacities in Brazil and India. Consumption is alsoexpected to increase in the global sugar market, thus creating a balanceexpected to increase in the global sugar market, thus creating a balance

inin the global sugar scenario.the global sugar scenario.


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Ethanol To Provide Additional RevenueEthanol To Provide Additional Revenue

The ethanol blending programme has opened up additional revenueThe ethanol blending programme has opened up additional revenue

stream for the sugar industry. With the governments intention ofstream for the sugar industry. With the governments intention of

increasing the blending proportion from 5% to 10% the potential isincreasing the blending proportion from 5% to 10% the potential ishuge. The ethanol blending programme has been successfullyhuge. The ethanol blending programme has been successfully

implemented in 9 states and it will soon be implemented throughoutimplemented in 9 states and it will soon be implemented throughout

the nation.the nation.

This would further strengthen the position of the sugar industries inThis would further strengthen the position of the sugar industries in

the country and make them a viable investment option.the country and make them a viable investment option.


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Some financial details of the sugar industrySome financial details of the sugar industry

1. Current assets in sugar industry comprises of 601. Current assets in sugar industry comprises of 60--70% of the total70% of the totalassetsassets

2.2. Average current ratio for the years 2008Average current ratio for the years 2008--09 has been 0.8 times09 has been 0.8 times

3.3. Average debtAverage debt equity ratio has been 2.5 timesequity ratio has been 2.5 times

4.4. Average return on capital employed is 10.3 %Average return on capital employed is 10.3 %

5.5. Average debtors days is 15.8 daysAverage debtors days is 15.8 days

6.6. Average creditors days is 114 daysAverage creditors days is 114 days

7.7. StockStock to use ratioto use ratio 55%55%


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ConclusionConclusion


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Hypothesis 1Hypothesis 1 ---- Accept Null hypothesisAccept Null hypothesis

There is a significant effect of external factors on sugar pricesThere is a significant effect of external factors on sugar prices

Hypothesis 2Hypothesis 2 ---- Reject AlternateReject Alternate

There is a significant effect of external factors on sugar pricesThere is a significant effect of external factors on sugar prices


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The sugar industry seems to be finally coming out of theThe sugar industry seems to be finally coming out of theworst ever recession that it had seen over the past fewworst ever recession that it had seen over the past few

decades. After successive years of surplus production anddecades. After successive years of surplus production anduninhibited capacity addition, the sugar output in India hasuninhibited capacity addition, the sugar output in India hasstarted declining. While it may be still premature to commentstarted declining. While it may be still premature to commenton the production estimates for 2010on the production estimates for 2010--11, it is evident that11, it is evident thatproduction will not exceed consumption as area underproduction will not exceed consumption as area undersugarcane plantation has fallen significantly. Thissugarcane plantation has fallen significantly. Thisdevelopment has witnessed a smart rally in sugar prices thatdevelopment has witnessed a smart rally in sugar prices that

have come back to the levels that were prevailing in 2006.have come back to the levels that were prevailing in 2006.There is still uncertainty about the sugarcane prices as theThere is still uncertainty about the sugarcane prices as thematter is under litigation and will have a significant impact onmatter is under litigation and will have a significant impact onthe profitability of the industry. Furthermore, with the fall inthe profitability of the industry. Furthermore, with the fall insugarcane production, prices of byproducts such as molassessugarcane production, prices of byproducts such as molassesandand bagassebagasse have also started strengthening.have also started strengthening.


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ReferencesReferences http://economictimes.indiatimes.com/markets/commodities/Govthttp://economictimes.indiatimes.com/markets/commodities/Govt--mullsmulls--

cutscuts--inin--sugarsugar--millsmills--contributioncontribution--towardstowards--PDS/articleshow/6593812.cmsPDS/articleshow/6593812.cms

www.sugarindustry.com/www.sugarindustry.com/

www.business.mapsofindia.com/sugarwww.business.mapsofindia.com/sugar--industry/industry/ http://www.financialexpress.com/news/sugarhttp://www.financialexpress.com/news/sugar--seminarseminar--toto--focusfocus--onon--

sustainablesustainable--growth/649450/growth/649450/

http://www.businesshttp://www.business--standard.com/india/news/sugarstandard.com/india/news/sugar--outputoutput--maymay--riserise--2828--

toto--2424--mnmn--tonnestonnes--inin--20102010--11/109713/on11/109713/on

http://economictimes.indiatimes.com/markets/commodities/Indiahttp://economictimes.indiatimes.com/markets/commodities/India--toto--

exportexport--sugarsugar--inin--2010/112010/11-- Govt/ Govt/articleshowarticleshow/5929752.cms/5929752.cms

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