June 2010 - Record White Sugar Premiums: What are the implications?

White sugar premium hits record level though values to return to normal levels as new crop comes on stream

The prompt white sugar premium and physical values for white sugar have climbed to record levels, according to Czarnikow, one of the UK’s oldest sugar traders. Despite this year’s Thai export programme outpacing last year’s and refineries operating at capacity, it is still not clear whether global demand will be met.

Czarnikow’s latest Sugar Review published today analyses the outlook for the white premium, which is the arbitrage that exists between the London Euronext LIFFE white sugar market and the New York ICE No.11 raw sugar market.

  • The first half of 2010 has seen physical values for both Thai and Brazilian white sugar strengthen markedly, while the prompt white premium has raced to record levels above $170.
  • While the raw sugar price has anticipated the return of a small surplus in the 2010/11 season, the whites market is firmly rooted in the present spot supply problems.
  • Domestic prices have been strong since the beginning of the year, and following the world market price collapse have become decoupled from the raw sugar futures markets as this price decrease has not passed through to local markets, particularly in those countries that have aggressively run down stocks and still need to import white sugar.
  • Though current record prompt white sugar premium levels are providing supernormal returns for spot sugar sellers the outlook is for values to return to more‘normal’ levels in the medium term as the new crop comes on stream towards the year-end.

Toby Cohen, head of analysis at Czarnikow, said: “The sharp rise in the white sugar premium this year has been driven by a disconnect between the fall in the raw sugar futures market and domestic sugar markets, which have remained stubbornly high. White sugar has continued to flow into these markets as a result of the shortfalls seen in 2009/10 that are still to be resolved, even though the raw sugar futures are trading on the expectations of much greater production from the 2010/11 CS Brazilian sugar crop.”

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About Czarnikow:

Czarnikow Group is one of the most respected names in agricultural commodity markets and has been providing high quality market services since 1861. Czarnikow operates in three core areas; sugar, biofuels and corporate services. Their success is built upon knowledge of the market, confidentiality, reliability and independence.

Commercial involvement in physical sugar transactions in excess of 8 million tons of sugar each year means that Czarnikow has a first hand presence in all major sugar markets of the world. Czarnikow works throughout the entire supply chain providing services to growers, millers, refiners, beet producers, traders, merchants and industrial users.

Czarnikow operates from a head office in London and a network of 10 regional offices to service clients and customers globally.