Since the government has initiated a crackdown against black markets of essential commodities, the ex-mill prices of sugar have fallen by nearly Rs. 3,000, bringing a significant problem for those involved in speculation and gambling over sugar prices.
For those who never heard of satta and speculation of commodities like gold and sugar, there are two types of buying that take place in wholesale markets.
One is where deals take place at present prices and one is where forward buying and selling are done on speculative prices for the next month and the months after that. Forward contracts are always priced higher since these stocks are not picked up and are kept with mills.
Now while it’s quite similar to international futures trading, it’s highly unregulated, mostly based on rumors rather than actual activity in financial markets, and can quickly take an ugly turn as happened with the case of sugar this year. As retail prices spiked to Rs. 170-180 in a few months from Rs. 100 fueled by smuggling, hoarders and dealers started to speculate more and more in a vicious cycle.
When ex-mill prices touched their record high of Rs. 17,000 per 100 kg around September 5, 2023, dealers and speculators were shaking hands over forward contracts for October and November for prices as high as Rs. 18,000 to 19,000 per 100 kg.
But since the government initiated a crackdown, there has been a bloodbath in the black market. As per our sources, brokers had turned their phones off, forward contracts were closed for more than two weeks and markets nosedived as everyone acted for themselves. Even after the media reports and pressure have subsided and the Lahore High Court extended the stay order for millers after the recent hearing on September 20th, prices remained the same.
It puts a number of big names in the hoarding business on the edge where most can even default and can go under for the good as not many of them will be able to bear this price differential of Rs. 2,700 to Rs. 3,000.
It also must be noted that not all involved are legacy hoarders, but it also includes wholesale dealers and people from other businesses who jumped in looking for a rally.
“People invested billions for October and November contracts buying at Rs. 18,000-19,000 per 100 kg and most of them are hoarders and investors looking for short-term gains because wholesale dealers avoid buying bulk stocks in such market environment.” stated a market consultant while talking to ProPakistani
He added that these people can default, may never be able to enter this business again, and would avoid it for good. He also said millers will mostly escape scratch-free in all this since the majority of them are already sold out and most of the stocks lying with them belong to these people.
The bottom line is that this is not really a bad thing. This is exactly what happens when you overplay your hand and believe that the caretaker government will largely be ineffective in curbing black marketing and smuggling. This is simply speculators getting a taste of their own medicine.
These short-term gains at the expense of consumer suffering should never be a lucrative business opportunity in the first place especially in a country like Pakistan where 40 percent live in poverty and capital should be invested in productive business opportunities, generating employment and revenues for the country and its people.
But there is a silver lining. If you closely look at the above graph, prices have slightly picked up some Rs. 500 per 100 kg since yesterday. On the other hand, media reports have stated that the cane commissioner Punjab has directed the millers to start sugarcane crushing from 28th October as delay can increase prices while timely crushing can bring retail prices below Rs. 140 per kg.
It is understandable to expect some resistance from millers on this point as always and they are reportedly looking for one month delay in crushing. It is to be seen whether the government can enforce its decision or not and that will not only decide the fate of billions invested by the hoarders in stockpiling sugar. When contacted for a response on the expected cursing season dates, the focal person for the Pakistan Sugar Milks Association (PSMA) stated that it is every mill’s own decision.