India Likely To Resume Sugar Futures Trade In October .

India is unlikely to extend a ban on sugar futures trading in October as production of the sweetener has risen significantly and local prices have fallen, said the head of the country's commodity futures markets regulator Tuesday.

The federal government banned futures trading in sugar in May 2009, initially for seven months, due to a production shortfall. But it later extended the ban until September 30, 2010, to keep prices under control.

"Chances (of allowing sugar futures trade) are bright because the supply position has improved and prices have eased," B.C. Khatua, chairman of the Forward Markets Commission, told Dow Jones Newswires.

Sugar output in India, the world's second-biggest producer, is likely at 19 million metric tons in the marketing year ending Sept. 30, compared with an initial estimate of 16 million tons.

Production in 2010-11 is likely to rise to between 23 million tons and 25 million tons, according to industry officials. Higher production estimates have brought down prices by more than 37% in the past six months to INR2,539 per 100 kilograms. Local sugar prices hit a record INR4,050/100 kg in January.

The country was forced to import sugar for the second straight year in 2009-10 because of a drought and a fall in area under cane.

Khatua said if the ban is lifted, the regulator won't give permission for more than nine futures contracts so as to ensure that there is enough liquidity in all contracts.

"Last time we had given permission for 12 contracts, but we didn't find enough liquidity in the last three-four contracts," he said.

Khatua said also that a ban on rice futures trading is likely to stay until the next crop is harvested in 2011.

The government banned futures trading in rice, wheat and some pulses such as pigeon pea and black matpe in early 2007, blaming speculation in futures for a sharp rise in local spot prices. While it allowed wheat futures trading last year following bumper harvests, the ban on pulses futures is still in place.

"This year we had a shortfall in rice production. I would keep my fingers crossed as far as rice is concerned."

India's rice output is forecast to shrink about 10% to 89.31 million tons in the current crop year through June, according to federal farm ministry data. The South Asian country is the world's second-biggest rice producer after China.

Rice output was hurt by a poor monsoon last year, when India received the lowest rainfall in nearly four decades.

"Depending on this year's monsoon we will take a call on pulses ban at an appropriate time," Khatua said.

Source : The Wall Street Journal