Understanding how sugar is priced and how spreads work is essential for profitable trading.
Price Conventions
| Market | Unit | Example |
|---|
| ICE No.11 | Cents/lb | 21.50 c/lb |
| ICE No.5 | USD/MT | $550/MT |
| Physical | Basis to futures | No.11 H + 40 |
Unit Conversion
| Conversion | Formula |
|---|
| c/lb → $/MT | c/lb × 22.0462 |
| $/MT → c/lb | $/MT ÷ 22.0462 |
Example: 21.50 c/lb × 22.0462 = $474/MT
Price Components
Physical Price = Futures + Basis
├── Quality premium/discount
└── Market premium (supply/demand)
Premium Structure
By Origin
| Origin | Typical Premium |
|---|
| Australia | +50 to +100 pts |
| Brazil VHP | Benchmark (0) |
| Thailand | -20 to +30 pts |
| India | -50 to +20 pts |
| Guatemala | +20 to +50 pts |
By Quality
| Factor | Premium |
|---|
| VHP vs Standard | +5 to +15 pts |
| VVHP vs VHP | +3 to +8 pts |
| VLC vs VHP | +5 to +15 pts |
| Low ICUMSA (<1000) | +10 to +20 pts |
Seasonal Pattern
| Period | Premium |
|---|
| Jan-Mar (off-season) | Higher |
| Apr-May (crush starts) | Moderate |
| Jun-Aug (peak crush) | Lower |
| Sep-Oct (winding down) | Firming |
Basis Trading
Understanding Basis
Basis = Physical Price - Futures Price
Physical VHP Santos: 22.10 c/lb
Futures No.11 Mar: 21.50 c/lb
Long Basis Trade
View: Basis will widen
Step 1: Buy physical at No.11 H + 40
Step 2: Sell No.11 H futures
Profit: 60 - 40 = 20 pts = $4.41/MT
Price direction doesn't matter!
Short Basis Trade
View: Basis will narrow
Step 1: Sell physical at No.11 H + 60
Step 2: Buy No.11 H futures
Calendar Spreads
What is a Calendar Spread?
Price difference between contract months.
Mar-May Spread = Mar Price - May Price
+30 = Inverse (Mar > May) = Tight supply
-30 = Carry (May > Mar) = Storage costs
Common Spreads
| Spread | Months | Driver |
|---|
| H-K | Mar-May | Brazil start |
| K-N | May-Jul | Mid-season |
| N-V | Jul-Oct | Hemisphere switch |
| V-H | Oct-Mar | Inter-crop |
Spread Trade Example
Bull Spread (buying spread):
View: March will outperform May
Buy Mar @ 21.50, Sell May @ 21.20
Sell Mar @ 21.80, Buy May @ 21.30
Profit: 50 - 30 = 20 pts = $2,240/contract
White Premium
Spread between refined and raw:
White Premium = No.5 - (No.11 × 22.0462)
No.11 = 21.50 c/lb = $474/MT
Typical Range: $50-120/MT
Premium Drivers
| Factor | Impact |
|---|
| Refining utilization | High = wide |
| Raw supply | Abundant = narrow |
| White demand | Strong = wide |
| Energy costs | High = wide |
Arbitrage
Geographic
Thai FOB Bangkok: $490/MT
Brazil FOB Santos: $500/MT
Freight Thai→China: $25/MT
Freight Brazil→China: $45/MT
Arbitrage: Thai $30/MT cheaper
Quality
VHP @ $500/MT, VVHP @ $505/MT
Processing saving with VVHP: $5/MT
If refiner values VVHP at $10/MT premium
but market only charges $5/MT premium
Price Discovery
Fundamental Factors (Supply, Demand)
Futures Market (Price Discovery)
Physical Market (Benchmark ± Basis)
Key Sources
| Source | Info |
|---|
| ICE | Futures prices |
| Platts | Physical assessments |
| USDA | Supply/demand |
| ISO | Global stats |
Historical Prices
Key Events
| Year | Event | Price |
|---|
| 2011 | Brazil weather | 36 c/lb |
| 2015 | Pre-El Niño | 10 c/lb |
| 2016 | El Niño drought | 24 c/lb |
| 2020 | COVID crash | 9 c/lb |
| 2023 | India export ban | 27 c/lb |
Price Distribution
| Percentile | Price |
|---|
| 5th | 10.5 c/lb |
| 25th | 13.0 c/lb |
| 50th | 17.0 c/lb |
| 75th | 21.0 c/lb |
| 95th | 28.0 c/lb |
Pricing Models
Cost of Production
Agricultural: $800-950/MT
Total: $1,150-1,420/MT raw
Cost: $230-285/MT = 10.5-13.0 c/lb
Brazil sets floor in oversupply.
Fundamental Valuation
| Balance | Implied Price |
|---|
| Surplus >5 MMT | 15-17 c/lb |
| Balanced (±2) | 18-22 c/lb |
| Deficit >5 MMT | 23-28 c/lb |
Key Takeaways
- Price = Futures + Basis — Physical relative to benchmark
- Basis captures local factors — Quality, location, timing
- Spreads reveal market — Carry vs inverse
- Arbitrages exist — Geographic, quality, time
- Fundamentals drive trend — S/D balance
References