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INTRODUCTION
Sugar is produced in more than 120 countries and
global production is now more than 174 Million tons
a year. Approximately 70% of this is produced from
sugar cane, largely grown in tropical countries, and
the remaining 30% is produced from sugar beet, a
root crop grown mostly in northern temperate zones.
The primary use and market for sugar is the food industry, as sugar is used as a sweetener, preservative,
texture modifier, fermentation substrate, flavoring
and coloring agent, bulking agent and to add decoration to food items, such as cakes.
This paper looks at this important commodity in terms of its supply chain, markets,
price formation and most importantly, unique functional requirements in a CTRM solution. While there are many CTRM software solutions on the market, there are many fewer that can truly handle the unique aspects of sugar trading. The paper identifies the
unique characteristics of sugar trading and sugar trading that needs to be included in
a sugar-focused CTRM solution.
A ComTechAdvisory Whitepaper
SUGAR CANE
Sugar cane is essentially a giant grass that grows up to 3 meters in height in tropical and semitropical regions.
It needs rainfall and sunlight to grow and the majority of the sugar cane production is not irrigated, relying solely
on rainfall. Harvesting the sugar cane is performed either manually or mechanically, and in both cases the cane is
cut close to the ground and the leaves removed. The plant re-grows each year from the original root, but requires
replacement after an average 7-year period.
SUGAR BEET
White beet sugar is made from the beets in a single process rather than the two steps required for cane sugar.
The beets are harvested in the autumn and early winter and transported to the factory by large trucks. Beet is a
rotational crop requiring almost 4 times the land area of an equivalent sugar cane crop. The beets have to be
thoroughly washed and separated from mud, stones, leaves and other debris and waste before being processed.
The clean beet is then sliced into thin chips to increase the
surface area of the beet for enhanced sugar extraction.
These chips are placed in a diffuser with hot water for
around an hour. Afterwards, the exhausted beet slices
are run through screw presses to extract as much of the
juice as possible. The pressed beet is then turned into
pellets, which are used as a constituent of animal feed.
The raw juice will usually contain about 14% sugar and it
must be cleaned before it can be used for sugar production.
Once cleaned through a process known as carbonatation, the
liquid is processed in a multi-stage evaporator to reduce it to
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The US produces about 7.7 million tonnes per year, but faces
a net consumption shortfall of 3.1 million tonnes, which is met
through imports. These imports are mainly supplied from Mexico that aggressively competes for the US domestic market.
Trade regulations and quota systems are severely impacting
sugar flows between US and its adjacent countries Mexico,
Canada and consequently prices.
Similarly, the European Union, though a significant producer and a region in which sugar consumption has declined
in recent years, will typically import more sugar than it exports in any given year. In 2014 the EU countries exported
1.5 million tonnes, while importing some 3 million tonnes.
The latter highly influenced by trade regulations, price regulations and export quotas set by the European Union.
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but the growth of refining capacity at destination (in particular on the North African Continent and the Middle East) has
helped re-direct some of the white sugar demand. Additionally,
low quality white sugars have begun to displace high quality
white sugars. Today refineries at destination represent 60%
of global white sugar exports. Since white sugar directly flows
to food industrials and end consumers, the white sugar market is much more fragmented than the raw sugar market. The
ten largest importing countries representing less than 45% of
white sugar demand, and almost endless number of specifications, logistic varieties and buyers.
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At the NYMEX, sugar futures no. 11 for raw sugar are traded, on ICE sugar futures no. 16 represent raw sugar, while at
NYSE Euronext it is sugar futures contract No. 407 representing either white beet, cane crystal or refined sugar. Finally, the
Olsa de Mercadorias & Futuros, offers sugar futures contracts
for cane crystal sugar.
34.00
32.00
30.00
28.00
650.00 26.00
600.00 24.00
550.00 22.00
500.00
20.00
18.00
450.00
423.80 16.00
400.00 14.71
350.00 12.00
2011
2012
2013
2014
2015
2016
300.00 10.00
A ComTechAdvisory Whitepaper
Sugar is a complex commodity. It is traded at different geographical and functional markets and in these markets traders, merchandisers and consumers all value and use different
specifications. Raw sugar is priced based on terminal markets,
but in pricing and settlement, the purity of the non-refined sugar is a key price denominator. Purity of raw sugar can measured with a spectrometer and is determined by the degree of
polarization. The Polarization Premium is an important aspect
of the raw sugar price. White sugar is traded at a premium over
raw sugar and different types of white sugar have different premiums.
Raw Sugar
Refined Sugar
Refined Sugar - Fine Granulated
White Crystal Sugar
CrystalMuscavado
Demerara
CasterIcing
Premium Liquid Sugar
When it comes to quality and specifications, the International Commission for Uniform Methods of Sugar Analysis is the provider
of the ICUMSA standards and an ICUMSA rating is an international unit for expressing the purity of the sugar in solution, and is
directly related to the color of the sugar.
/W
hite Refined
Sugar - ICUMSA 45
A
highly refined sugar product, Icumsa 45 is easily
recognizable by its distinctive sparkling white color
and pure sucrose taste. It is considered to be the
worlds leading consumer sugar that possesses a
standard by which other types of sugar are measured against.
/S
ugar
- ICUMSA 100
Icumsa 100 is refined sugar that has a lower grade
and lower production cost than Icumsa 45. Having
a light white color, this kind of sugar does not possess the visual appeal of sparkling white Icumsa 45,
however, Icumsa 100 is still a food grade sugar that
is safe for human consumption.
/W
hite Crystal
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/V
HP Sugar
- ICUMSA 600-1200
The term VHP (Very High Polarity) is widely understood to mean that 99.4 percent (or expressed as a
polarization of 99.4) of the total mass of the raw sugar is pure sucrose, and that only 0.6 percent or less
is waste material. Such a relatively low contaminants
level, cause this sugar to have a light brown in color.
VHP remains in high demand, as it is much cheaper
and easier to refine than standard raw sugars.
a speculative trading mode. Producers and consumers of sugar will focus more on the physical side of the business, bridge
the functional markets (raw/white), optimize their supply chain
and are capital based whilst utilizing futures markets for hedging and price/margin risk management. These different types
of Supply Chain Participants create the different needs and
requirements for Commodity Trading and Risk Management
(CTRM) software for the Sugar industry.
Sugar trading has a number of very specific aspects to it that should be functionally supported by a CTRM solution, for that CTRM
solution to be effective.
/ Since there
/S
ugar is
unique in the sense that it has two principal markets or products that can be converted to
each other physically. Raw sugar can be processed
and converted into white sugar and hence there is a
differential known as the white premium that can
8
A ComTechAdvisory Whitepaper
/B
reak bulk
/O
ver time,
/T
he sugar
/ M
any trades
/D
eposit
These examples are just a few of the specific functional requirements for sugar trading that may not be supported in a generic
CTRM solution, or may require some significant workarounds. As general guidance, anyone looking to procure a CTRM solution
for its sugar trading or sugar procurement business should ensure that the short-listed CTRM solutions are able to handle such
specifics, along with all of the other expected functions and features of a good and usable solution. Experience shows that when
considering the sugar-specific functional criteria outlined above, the number of potential CTRM solutions is narrowed considerably.
A ComTechAdvisory Whitepaper
While AGIBLOCKS is a strong contender across many commodities, including Coffee, Cocoa, Grains, Oilseeds, and Dairy,
it is extremely strong in terms of meeting the specific requirements of the sugar markets. This is evidenced by the number
of reputable customers that have implemented and are using
AGIBLOCKS, to support their day-to-day sugar trading and/or
merchandising businesses.
Wim Depla at Hottlet Sugar Trading, pointed to this issue specifically saying, Finding a suitable commodity trade and risk
management solution for sugar is not that easy as might look
AGIBLOCKS provides all of the specific and generic functionalities discussed above that are relevant to sugar and probably
should be on any shortlist of CTRM software for companies
involved in sugar markets that have a CTRM software need.
10
ABOUT AGIBOO
Agiboo BV headquartered in The Netherlands is a provider of commodity trade and risk management solutions
with a focus on agricultural and soft commodities and in specific on Cocoa, Coffee, Sugar, Dairy and Grains. The
flagship product Agiblocks has been adopted in the commodity trade and risk management industry since 2011.
www.agiboo.com
info@agiboo.com
ABOUT
Commodity
Technology
Advisory
LLC
Commodity Technology Advisory is the leading analyst organization covering the ETRM and
CTRM markets. We provide the invaluable insights into the issues and trends affecting the
users and providers of the technologies that are crucial for success in the constantly evolving
global commodities markets.
Patrick Reames and Gary Vasey head our team, whose combined 60-plus years in the energy
and commodities markets, provides depth of understanding of the market and its issues that is
unmatched and unrivaled by any analyst group.
For more information, please visit:
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