(Bloomberg) -- As India’s monsoon draws to a close, all eyes are on the health of the sugar crop as speculation swirls about possible export restrictions.

The global sugar market has been jittery for weeks on concerns that poor rains will crimp output and prompt India to restrict shipments to contain local prices ahead of an election next year. The nation’s food secretary is confident about the crop, but traders, analysts and millers say curbs are coming.

India’s monsoon runs from June through to the end of September, and major sugar growing regions in Maharashtra and Karnataka have seen lower rainfall this season. The South Asian nation is the world’s second-biggest producer of the sweetener after Brazil, and the government of Prime Minister Narendra Modi has already restricted exports of rice and wheat.

Overall, India’s cumulative monsoon rainfall was 6% below normal as of Sept. 28, according to the nation’s weather bureau, but the shortfall has been even bigger in some regions. Parts of Maharashtra have seen about 14% less rain, while in some areas of Karnataka, it’s been 27% lower.

Late rains last year reduced yields and cut output, prompting India to restrict millers to about 6 million tons of exports in 2022-23, almost half of what was allowed the previous year. In a Bloomberg Television interview last week, the executive chairman of Shree Renuka Sugars Ltd. said output could be “much lower” and that may lead to restrictions on shipments.

According to a Bloomberg survey of 14 analysts, traders and millers, most said India may not export any sugar in the new season starting Oct. 1 due to lower output. Two respondents said shipments could total at least 2 million tons.

“Exports will be a non-starter,” said Rahil Shaikh, managing director of Meir Commodities India Pvt., a trading firm. The government will be cautious in allowing shipments until April, when full production numbers will be known, said Shaikh, a former head of ED&F Man Commodities India.

At a conference held in New Delhi last week, Sucden’s General Director Jeremy Austin said the South Asian nation is expected to produce 28.6 million tons of sugar this season. The Indian Sugar Mills Association estimates the country’s output was 32.8 million tons in 2022-23.

India’s domestic sugar prices have gained about 5% so far this year, according to data compiled by the food ministry. The government indirectly controls costs as it regulates the volume millers can sell each month.   

The harvest is due to start next month and Food Secretary Sanjeev Chopra says the output outlook has improved after recent rains. He added that the nation isn’t facing a sugar shortage and that India would ask millers to sell more to control domestic prices. The country will also watch for hoarding.

However, any shortfall is likely to make the market nervous, given output from key exporter Thailand is set to slide due to drought. Raw sugar prices in New York are trading near a 12-year high, despite a bumper harvest from Brazil, and a further squeeze in global supply could send futures even higher.

--With assistance from Abhay Singh.

(Updates to add trader comment in seventh paragraph.)

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