White Papers CTRM for Sugar – Managing Sugar’s Complexity

CTRM for Sugar - Managing Sugar’s Complexity A ComTechAdvisory Whitepaper required to be able to serve smaller counterparties in smaller quantities efficiently, broadly eliminating counterparty risk. Complex deposit terms combined with complex pricing structures, both incepted at deal capture, and controlled over the time of the contract, might create inefficiencies and risks when badly managed. A sugar solution should address this complexity from all (deal capture and a counterparty credit \ risk, settlement) perspectives. v alue the conversion. The premium can change dai- ly based on things like fuel costs and needs to be tracked. The white premium has to be handled by a CTRM used for sugar explicitly for the usage of pricing, but also to support rolling the premium. /P olarization is a quality measure. The clearer the sugar crystals, the less it costs to convert raw sugar into white sugar and therefore polarization (a quality measured using laboratory testing) is expressed in the contract and pricing terms. This quality aspect is specific to sugar and also need to be tracked by the CTRM for pricing, and settlement purposes, but it s also used to determine cost accruals and is utilized in valuation calculations to gain an accurate picture of Profit and Loss. /B reak bulk and bulk logistics – In sugar trading, managing logistics is made more complex by the fact that while white sugar is usually containerized, raw sugar can be traded in bulk. This means that a CTRM system for sugar must be able to handle both types of movement efficiently. For white sugar, containers will need to be tracked; deliveries may be made up of single or multiple containers whose movements need to be managed. On the other hand, bulk raw sugar requires a number of different items to be handled including loading times and vessel size, for example. Many CTRM solutions can cater for one or the other type of logistics but not both. /O ver time, a number of product properties have emerged that also need to be ‘understood’ by the CTRM and these are specific to sugar. Examples are the Coca Cola specification and the ICUMSA classifications. All of these product properties need to be captured and held in the CTRM solution. For refineries and millers, customized and changing specifications need to be supported as well, including but not limited to a wide range of product forms and packaging alternatives. /T he sugar / M any trades in sugar are traded at “prices to be fixed”. This creates a need for insight in to the position to be obtained in the future. This requires position screens to show the ‘to be price fixed’ positions as well as overall position for each distinguished hedging market, it also requires an efficient invoicing process, as ‘too be fixed’ contracts are usually time consuming to settle; /D eposit Payment Terms - Commonly, white sugar traders will utilize deposit payment terms to minimize counterparty credit issues. The latter is also market is very dynamic and the sugar trade continuously adapts to a growing and changing market, eliminating inefficiencies as perceived by its participants. For example, reflecting the need for smaller size trades, more efficie

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