On 1 October 2017 the European Union production quota for sugar will be cease to exist. Again a reduction of market interference by the EU policy makers and a development very similar to the discharge of dairy quota’s in the EU.
Many connected to the industry wonder whether the sugar industry will face a similar market scenario as Dairy. When EU dairy quotas were abandoned market dynamics where significantly changed in a very short period of time. Milk production went up by almost 10% on a continent where the population is growing in a very low pace, and unfortunately this policy change coincided with import and export politics for markets such as China and Russia. The impact on milk prices and thus dairy companies and farmers has been tremendous. Like always commodity markets will return to their equibrilliums , but nevertheless such is never without a period of turbulence.
Market conditions
Sugar is a very different type of commodity then dairy, it is maybe easier to trade and it has a more liquid derivate market. It is therefore a challenge to foresee how the sugar industry and trade will react in anticipation and after 1 October 2017. Despite the recent price hike, since 2013 sugar prices dropped approximately 40% and the EU sugar price is nearly already in line with the world market prices. Main factor of anticipated price developments is the increasing competition by sugar producing countries and producers. You can expect that competition will become even stronger after 1 October 2017. There is one thing for sure; there will be a volatile period a head. And such market conditions will require tighter management of trading positions, market exposures and the use of derivative instruments to either hedge or take competitive advantage in market.
The importance of Risk Management
We at Agiboo recognize that especially European based sugar producers and traders will require a more advanced risk management toolset when the quota mechanisms come to an end! We consider that for most EU producers such need arises already today, since the market today anticipates the projections of next years crops and desired refining margins or beet price levels for EU (cooperative) beet farmers. For European based companies, more than ever before, it becomes essential to have real time data and information about the combined forward purchase and sales and hedges portfolio to manage pricings, price and margin risks. Agiboo recommends that such effective price and margin risk management is supported a trustworthy software solution which can accommodate the specific requirements and functionality for sugar trade and/or merchandising. It might be a comforting thought that such a software solution is available. Agiblocks commodity trade and risk management has specialized functionality for sugar. Agiblocks for accommodates deal capture for specific sugar scenarios and sugar risk management. A good example of this is the support for white premium pricing and white premium hedging. Agiblocks enables for real time position management and real time market to market valuation and offers all required Commodity ERP functionalities such as logistics & inventory management, invoicing and financial management. Be ready for the challenges caused by the 1st October 2017 ! Allow yourself to have best software tools for the procurement, trade or merchandising of sugar. Benefit from new technology and start using Agiblocks as your end to end Commodity ERP or as your price and margin risk management toolset
on top of your current application landscape.
Read more about Agiblocks CTRM on this website or download our White Paper: CTRM for Sugar
