*****US Could Run Out Of Sugar As India Faces Water Shortage*****

Nogger's blog reports about potential US sugar shortage, lack of rain in India, and bogus USDA estimates.

(emphasis mine) [my comment]

Thursday, 13 August 2009
US Could Run Out Of Sugar

London white sugar futures surged to new all-time highs Thursday as it was revealed that
US food giants including Kraft Foods, Hershey's and Mars had written to US Agriculture Secretary Tom Vilsack saying that the US could "virtually run out of sugar". They urged Vislack to increase the amount of tariff-free sugar they can import.

Meanwhile,
monsoon rains continue to elude northern India's sugar cane producing regions, cutting production there by an estimated 44%, according to the Indian Sugar Mills Association. The rainy season, which ends next month, has so far produced 29% lower than normal rainfall June 1 to Aug. 11.

Output in Maharashtra, India's largest producing state, is forecast to halve to 4.6 MMT this season, from 9.1 MMT last year.

Meanwhile global demand is seen outstripping production by 5-7 MMT in the coming season.

London white sugar surged $19.90 to an all-time high of $589.90/tonne.

Wednesday, 12 August 2009
Today's USDA Faux Pas

Have you spotted it yet? You might have heard that there's a drought on in India. Maybe you are aware that they had their worst monsoon rains in 83 years during June? Perhaps it may have come to your attention that
India's monsoon season has produced 28% less rain than normal to date (June 1st - Aug 9th), with only six weeks to go until the rainy season ends? Here around 60% of the agricultural land is exclusively rain-fed, the remaining 40% relies on irrigation from reservoirs normally filled with abundant monsoon rains.

The sugar market has been hitting regular daily highs on the back of this drought, so what does this mean for wheat production potential in the world's second largest producer for the season ahead?

That's right
it's increased by 3 MMT from last month to an all-time high of 80.58 MMT! [USDA's production estimates are complete nonsense]

The Financial Times reports that New Delhi warned on water shortages.

New Delhi warned on water shortages
By Fiona Harvey in London and Amy Kazmin in New Delhi
Published: August 12 2009 18:01 Last updated: August 12 2009 18:01

The north-western region of India is running out of water, as people are sucking more stored water from under the earth than can be replenished, a scientific study has found.

The decline in levels of groundwater threatens agricultural productivity, as the water is used for irrigation of crops, and could lead to severe water shortages, warn the authors of the paper, published in the journal Nature.

Indian water policy experts blame the worsening shortages on government water-pricing policies that lead to the widespread overuse of water — among both farmers and city dwellers — rather than creating incentives for conservation of what is an increasingly scarce resource.

Water experts say India must charge more for water to encourage rational use, although such reforms would be met with fierce resistance. Ashok Jaitly, director of water resources policy at Teri, the New Delhi-based environmental institute, said: "How do you reduce inefficiency when you don't price water? Water has a long-term economic value that needs to be recognised."

In the agricultural heartland state of Punjab, for example, farmers are provided with free electricity so they can run pumps to bring up groundwater for irrigation, while little is done to encourage them to adopt more expensive, but sustainable, techniques of drip irrigation. Elsewhere, too, water is heavily subsidised, if not in effect free.

"The whole policy framework is encouraging water-intensive farming," Mr Jaitly said.

The authors concluded that the evidence suggests the depletion of groundwater was caused by irrigation and other human uses.

The study, carried out at Nasa and the University of California, examined satellite records for the north-west of India from 2002 to 2008. During that time, rainfall was at normal or even slightly above, and the scientists found that other factors that can influence water availability, such as snow melt, could not account for the water loss.

Across India, according to the paper, groundwater accounts for about 50-80 per cent of the domestic water used, and 45-50 per cent of the water used for irrigation.

But although the Indian government is aware that groundwater is being withdrawn at "unsustainable rates", the problem tends to go untreated because of the difficulty of controlling water extraction.

"As in other nations composed of smaller sovereignties and encompassing competing interests that have become dependent on a certain level of water availability, it is difficult to implement a co-ordinated and appropriately stringent response," the paper concludes.

The report is likely to reinforce New Delhi's growing food security fears, particularly after this year's monsoon failure. The country, which boosted food output between 1960-1970 on the back of the "green revolution" through the use of extensive irrigation, now faces the challenge of cutting water use while increasing agricultural production.
[which is impossible]

My reaction: We are now seeing the beginning of the food crisis I warned about earlier this year.

Potential sugar shortages

1) US food giants including Kraft Foods, Hershey's and Mars have written to US Agriculture Secretary Tom Vilsack saying that the US could "virtually run out of sugar".

2) Monsoon rains continue to elude northern India's sugar cane producing regions, cutting production there by an estimated 44%, according to the Indian Sugar Mills Association.

3) India's rainy season, which ends next month, has so far produced 29% lower than normal rainfall June 1 to August 11.

4) Output in Maharashtra, India's largest producing state, is forecast to halve to 4.6 MMT this season, from 9.1 MMT last year.

5) Global sugar demand is seen outstripping production by 5-7 MMT in the coming season.

6) London white sugar surged $19.90 to an all-time high of $589.90/ton.

Another absurd USDA production estimate

1) According to the USDA production potential in the world's second largest wheat producer has increased by 3 MMT from last month to an all-time high of 80.58 MMT.

2) Considering India has just experienced the worst monsoon rains in 83 years during June, this wheat production estimate is absurd.

Growing water shortage in India

1) The north-western region of India is running out of water.

2) Indian water policy experts blame the worsening shortages on government water-pricing policies that lead to the widespread overuse of water

3) Water experts say India must charge more for water to encourage rational use, although such reforms would be met with fierce resistance.

A) In the agricultural heartland state of Punjab farmers are provided with free electricity so they can run pumps to bring up groundwater for irrigation.
B) Little is done to encourage Punjab farmers to adopt more expensive, but sustainable, techniques of drip irrigation.
C) Elsewhere in India, water is heavily subsidized, if not in effect free.

4) Although the Indian government is aware that groundwater is being withdrawn at "unsustainable rates", the problem tends to go untreated because of the difficulty of controlling water extraction.

5) The country now faces the challenge of cutting water use while increasing agricultural production, which is impossible.


Conclusion: Three points to take away from this.

1) The growing water shortages is very bullish for agriculture investments, which is why I am starting a fund to invest in Russian agriculture (PPM should be done this week)

2) As I have written before, I expect to a default on US futures contracts which leads to the collapse of those markets. A Sugar futures contracts are now the most likely candidate to trigger this event, followed closely by soybeans, gold, and silver.


3) USDA is overestimating global wheat production by between 50MMT and 100MMT. USDA estimates are now so divorced from reality it is scary, because it suggests desperation. The US financial system and economy is nearing the abyss (more on this in major article I will hopefully finish before the end of the week).

This entry was posted in Currency_Collapse, Food_Crisis, Market_Skepticism, News_Developments. Bookmark the permalink.

One Response to *****US Could Run Out Of Sugar As India Faces Water Shortage*****

  1. John Haskell says:

    Eric - it looks like you really got faked out on this one. Take a look at domestic sugar for September delivery

    http://quotes.ino.com/chart/?s=NYBOT_SE.U09.E&v;=d12

    It has skyrocketed from 23 cents a pound in August 2008 to ... well 25 cents a pound now.

    Not scared yet? Well major corporate consumers of sugar are calling on the government to supply them with cheaper sugar, offering as support some bogus claim that the US will soon "run out."

    You don't trust US banks to tell the truth but you trust Kraft, Hershey's and Mars... why?

    It might be worthwhile to be a market "skeptic" even when what you are hearing reinforces your existing prejudices.

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