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Indian sugar output likely to hit record next season as farmers stay sweet on cane

* Mills delay some payments for cane as sugar prices drop

* Govt source says payments worth nearly $3 bln have been
delayed

* But farmers sticking with cane as other crops not so
profitable

* Could stoke exports from the country, drag on global
prices

By Rajendra Jadhav

SANGLI, India, May 31 (Reuters) - India's sugar output is
likely to scale record highs in the next marketing season, with
farmers choosing to plant the crop despite falling prices and
around 200 billion rupees ($2.96 billion) in delayed payments
from mills for the current harvest.

Farmers such as Mohan Sawant, who this year planted cane on
two acres of land, say they will be sticking with the crop in
the marketing season that kicks off on October 1 as it still
offers larger profits than alternatives such as wheat.

"Sugarcane gives me better returns ... I would wait for
payment instead of getting lower profit from other crops," said
Sawant in the district of Sangli, around 375 km south of Mumbai.

Industry officials and traders said that farmers' devotion
to cane would drive sugar production to a fresh peak in the next
marketing season. Although they said it was too far out to make
estimates on the amount by which output would exceed the 32
million-tonne record expected in the current marketing season.

"It is difficult to give an exact production number right
now, but certainly next year output would be higher than this
year," said Prakash Naiknavare, managing director of the
National Federation of Cooperative Sugar Factories (NFCSF).

That output would likely stoke a glut that has weighed on
local markets, potentially pushing the country to try to ship
more of the sweetener overseas and dragging on global prices
that have already fallen 17 percent in 2018.

Farmers were cultivating cane on 4.87 million hectares as of
last week, slightly higher than 4.79 million hectares at the
same time in 2017, government data shows.

Apart from new plantings, large amounts of so-called ratoon
crops will also be available due to the low cost of taking a
second harvest, Naiknavare said.

Ratoon is the root stub of cane that remains after a first
crop and can grow again for a second harvest.

BETTER LATE THAN NEVER?

Local sugar prices <SUG-ARMKHP-NCX> have dropped over a
quarter in the past year to their lowest since September 2015,
dragged down by the supply glut.

That has made it "impossible" for mills to pay farmers on
time for cane, said B.B. Thombre, president of the Western India
Sugar Mills Association.

Mills have delayed payments for cane of more than 200
billion rupees, in some cases by as much as four months, said a
government official, declining to be identified as he was not
allowed to speak to media.

To reduce sugar stockpiles and support local prices, India
made it mandatory for mills to export 2 million tonnes of sugar
in March, but they have so far failed to ship large quantities
due to lower prices overseas, industry officials said.

Exports need to be ramped up with government help as
inventory is going to rise further in the coming season,
said Ashok Jain, president of the Bombay Sugar Merchants
Association (BSMA).

The country could start next marketing year with carry
forward stocks of 11 million tonnes, said Jain.

But any move to increase exports could be hindered after
fellow producers Brazil and Australia initiated a legal
investigation into whether India's support for its sugar sector
has violated World Trade Organization restrictions.

($1 = 67.4850 Indian rupees)

(Reporting by Rajendra Jadhav
Editing by Joseph Radford)

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