@sdelsad/commodity-desk-daily 1.0.43 → 1.0.44

package/ep14.md

@@ -0,0 +1,217 @@
+# Sugar: Two Contracts, the Switch and the Refiner
+
+# Market pulse
+
+**Sugar gave back three and a half percent on Friday after a month in which it rose twenty-one, and the grains went the other way — Chicago wheat closed at a three-year high.**
+
+| Market | Contract | Price | Change |
+|---|---|---|---|
+| Raw sugar No. 11 (ICE) | Oct 26 | 17.56 c/lb | −0.63c / −3.5% |
+| White sugar No. 5 (ICE London) | Oct 26 | $520.30/t | −$8.50 / −1.6% |
+| Chicago wheat | Sep 26 | 767.00 c/bu | +24¼c / +3.3% |
+| Soybeans (CBOT) | Sep 26 | 1276.25 c/bu | +19¾c / +1.6% |
+| Soybean meal | Sep 26 | $338.20/t | +$8.00 / +2.4% |
+| Corn (CBOT) | Sep 26 | 512.00 c/bu | +1¾c / +0.3% |
+
+Friday's sugar break reads as long liquidation into a weekend rather than a change of story. The move that matters is the one behind it: raws printed a fourteen-month high on 18 August and are still around twenty-one percent higher on the month. Three supply lines moved the same way at once. Brazil's Center-South made 3.903 million tonnes of sugar in June, down 26.3% year on year. Thailand's 2026/27 crop is forecast at 9.5 million tonnes, down 15.6%. EU and UK output is put at 14.98 million tonnes, the lowest in eleven years. The analyst community has flipped 2026/27 from surplus to deficit — the ISO now has −262,000 t, Green Pool −3.2 Mt, StoneX −1.7 Mt.
+
+At 17.56 cents the screen sits about two cents above the roughly 15.7 c/lb FOB cost of production for Brazilian raws. That is a market paying a real incentive, not a market at cost.
+
+The grain complex ignored all of it. Wheat led on Black Sea export risk, beans followed the meal, and corn barely moved as a fast US harvest capped it.
+
+```chart
+{"type":"bar","unit":"% change, Friday 28 August 2026","title":"Grains bid, sugar sold","caption":"On the same session the two complexes traded opposite stories: wheat priced an export threat, sugar priced a long book being trimmed before a weekend.","source":"CBOT and ICE settlements, Friday 28 August 2026","x":["Chi wheat","Meal","Beans","Corn","Whites","Raws"],"series":[{"name":"28 Aug","values":[3.26,2.42,1.57,0.34,-1.61,-3.46]}]}
+```
+
+**The policy read: India turns a tariff off.** India is the world's largest sugar consumer, and this month it opened a duty-free import window of one million tonnes running to 31 October against a standing 100% duty. The mechanism, not the headline, is the trade. A cut domestic crop, a monsoon running 13% below normal through 26 August, and retail sugar moving from 48 rupees a kilo in July to about 55 in August give a government little choice: food inflation gets the tariff switched off. The instant it is, the largest consumer stops being an occasional exporter and becomes a buyer, which moves the world balance sheet in both directions from one administrative decision. The caution is that a permission is not a purchase — one forecaster expects no more than 500,000 t to actually clear by the deadline.
+
+# Key takeaways
+
+- Sugar is quoted twice, one refining step apart: raws in cents per pound in New York, whites in dollars per tonne in London. The bridge is 22.05, and getting it wrong is a factor-of-twenty-two error.
+- The gap between the two screens is the white premium, and it is the market's price for the act of refining.
+- Center-South Brazil is the only origin at scale that can decide, daily, whether its crop becomes food or fuel. That makes its supply a decision rather than a harvest.
+- ATR is the unit that makes the decision computable, because it is the raw material for both products and the basis on which growers are paid.
+- Ethanol parity is the sugar price at which a mill is indifferent. Below it, mills make fuel; above it, they make sugar.
+- When sugar trades far above parity, the switch has already been used. A further rally pulls no additional tonnes out of Brazil and can only ration demand.
+- Sugar has two demand curves, food and fuel, and the fuel curve is a floor rather than a source of demand growth.
+- The floor moves with things that are not sugar: the blending mandate, crude, and the Brazilian real.
+- A refiner is not long sugar. He is long the spread between two contracts and short his own cost stack.
+- His break-even white premium rises with the raw price, because the refining loss is a percentage of what he buys and not a fee.
+
+# Vocabulary
+
+| Term | What it means |
+|---|---|
+| **No. 11** | The ICE raw cane sugar futures contract, 112,000 lb quoted in US cents per pound, FOB at origin, and the world price of raw sugar |
+| **No. 5** | The ICE London white sugar futures contract, 50 tonnes quoted in US dollars per tonne, delivered, and the world price of refined sugar |
+| **long ton** | 2,240 lb, the imperial weight unit the sugar No. 11 contract is still sized in at 50 long tons a lot |
+| **raws** | Raw cane sugar, the crystalline product a cane mill exports before refining, traded at 96 degrees polarisation |
+| **VHP** | Very high polarisation raw sugar, around 99 degrees, the grade Brazil exports and which trades at a premium to the No. 11 screen |
+| **polarisation (pol)** | The sucrose purity of a sugar measured by the rotation of polarised light, expressed in degrees, and the basis on which raw sugar is priced and settled |
+| **ICUMSA** | The colour scale for refined sugar, lower being whiter, with the No. 5 contract requiring 45 ICUMSA or better |
+| **white premium** | The price of the London white contract less the New York raw contract converted to the same unit, which is what the market pays for refining |
+| **ATR** | Açúcar Total Recuperável, total recoverable sugar, the kilos of sugar recoverable from a tonne of cane and the unit in which Brazilian growers are paid and mills compare products |
+| **sugar mix** | The share of a mill's recoverable sugars turned into sugar rather than ethanol, bounded above by the plant's crystallisation capacity |
+| **hydrous ethanol** | Roughly 95 percent ethanol sold directly at the pump for flex-fuel cars in Brazil, taking 1.6913 kg of ATR per litre |
+| **anhydrous ethanol** | Near-water-free ethanol blended into petrol under a mandate, taking 1.7651 kg of ATR per litre |
+| **ethanol parity** | The sugar price at which a mill earns the same per unit of ATR from sugar as from ethanol, and the level at which its production decision flips |
+| **Center-South** | The Brazilian sugarcane region running from São Paulo through Minas Gerais and Goiás, about 90 percent of the national crop and the world's swing supplier |
+| **destination refinery** | A standalone refinery at the consuming end that buys raws on the water and sells whites locally, earning the white premium less its costs rather than a crop margin |
+| **melt loss** | The sugar lost between raws in and whites out, roughly six percent, which makes a refiner's break-even premium a function of the raw price |
+| **toll refining** | Refining someone else's raws for a fee per tonne, which converts the white premium from a trading position into a fixed margin |
+
+# Quiz
+
+**Q1.** A Center-South mill will crush 3.6 million tonnes of cane this season at 138 kg of ATR per tonne of cane. Its board is deciding the sugar mix. Raw sugar is at 16.20 c/lb and the São Paulo hydrous ethanol indicator is at $0.4100 a litre. Use the industry factors: 1.0495 kg of ATR per kg of sugar, 1.6913 kg of ATR per litre of hydrous. Compute the ethanol parity price in cents per pound, then the extra revenue the mill earns by moving five percentage points of its mix from ethanol to sugar — and state the one reason that figure overstates what actually lands in the accounts.
+
+**Q2.** October whites settle at $520.30 a tonne. A destination refiner needs 1.06 tonnes of raws for each tonne of white he sells, and his refining cost is $70 a tonne of white. If raw sugar rallied to 20.00 c/lb, what white premium would he need to break even?
+
+**Q3.** *(Ep 13)* An exporter sells 15 lots of arabica price-to-be-fixed against December, buyer's call. December was 302.00 when the contract was signed and is 342.00 today, with the buyer still unfixed. Compute the exporter's mark-to-market credit exposure to that buyer.
+
+**Q4.** *(Ep 11)* In the middle of harvest week, a terminal elevator with no funding problem posts a corn bid fifteen cents under the board when every neighbouring bid is five under. Say what that bid is doing.
+
+**Conversion drill.** A Handysize parcel of 28,500 t of corn is being offered. Convert it to bushels using the mental method.
+
+# SOLUTIONS (spoilers)
+
+**A1.** The mill is not choosing a price. It is choosing which product to make out of a fixed pool of recoverable sugars, so every comparison has to be made per tonne of ATR.
+
+*Step one — the pool.* 3.6 million tonnes of cane at 138 kg of ATR per tonne gives 496,800 tonnes of ATR for the season.
+
+*Step two — what one tonne of ATR is worth each way.*
+
+| | Factor | Output per t of ATR | Price | Revenue |
+|---|---|---|---|---|
+| Sugar | 1.0495 kg ATR per kg | 952.8 kg | $357.15/t | **$340.30** |
+| Hydrous ethanol | 1.6913 kg ATR per litre | 591.3 L | $0.4100/L | **$242.42** |
+
+The sugar price comes from the screen: 16.20 c/lb × 22.0462 = $357.15 a tonne. Sugar beats ethanol by **$97.88 per tonne of ATR**, about 40 percent.
+
+*Step three — ethanol parity.* Run the ethanol number backwards to find the sugar price that would make the mill indifferent. Ethanol earns $0.4100 ÷ 1.6913 = $0.2424 per kg of ATR. One kg of ATR yields 0.9528 kg of sugar. So parity is $0.2424 ÷ 0.9528 = $0.2544 per kg, which is **$254.42 a tonne, or 11.54 c/lb**. The screen at 16.20 is 4.66 cents above parity.
+
+*Step four — the five points.* Five percentage points of 496,800 t of ATR is 24,840 t of ATR. At $97.88 a tonne of ATR, that is **about $2.43 million** of extra revenue for the season.
+
+*The trap.* The two prices are not measured at the same place. The ethanol indicator is a mill-gate price. The No. 11 screen is FOB the port, so the sugar route still has to pay road freight from the interior, port elevation and terminal costs before it reaches the mill gate — several tens of dollars a tonne of sugar, which eats a visible slice of the $97.88. The gap survives that deduction comfortably at these prices, which is the real answer, but a board paper that quotes $2.43 million without netting logistics is quoting a gross number as if it were a margin.
+
+Two second-order points worth having. The mix is bounded by crystallisation capacity, so "move five points" is an engineering question before it is an economic one — a mill already at its ceiling cannot take the trade at any price. And the moment the mill sells more sugar it takes on price risk it did not have, because ethanol is sold domestically in reais while sugar is sold in dollars.
+
+**A2.** One step, and the step is the loss factor.
+
+20.00 c/lb × 22.0462 = $440.92 a tonne of raws. He buys 1.06 tonnes for every tonne he sells, so his raw cost is $467.38. Add $70 of refining and he needs $537.38 for the white. The white premium he needs is therefore $537.38 − $440.92 = **$96.46 a tonne**.
+
+The quick route is the same arithmetic in one line: the premium has to cover the six percent he loses plus the fee, so 0.06 × $440.92 + $70 = $96.46.
+
+What the question is testing is that the break-even premium is not a constant. At Friday's 17.56 c/lb the same refiner breaks even at $93.23. At 12 c/lb he breaks even at $85.87. Every cent the raw market rallies raises his break-even, because the melt loss is a percentage of what he buys and the refining fee is not. A refiner who watches the premium in dollars alone believes a bull market is making him money, when part of the widening is simply keeping him whole.
+
+**A3.** 15 lots of arabica is 15 × 37,500 lb = 562,500 lb. The market has moved 342.00 − 302.00 = 40.00 cents in the buyer's favour since the contract was signed. At 40 cents on 562,500 lb, the buyer is sitting on an unrealised gain of **$225,000**, and that is exactly the exporter's mark-to-market credit exposure.
+
+The reason it is credit and not market risk is that the exporter is fully hedged on price. He sold futures against the sale, and whenever the buyer fixes, the futures leg and the physical leg offset. What he is exposed to is the buyer choosing not to fix at all — walking away from a contract that is now $225,000 in the money to the exporter's disadvantage, or failing altogether. The buyer has posted nothing against that gain. The exposure grows with every cent the market rallies, and no market move can reduce it to zero.
+
+**A4.** The bid is not a price. It is a refusal.
+
+An elevator that is ten cents worse than its neighbours in harvest week, with money available, is not making a statement about the value of corn. It is managing a queue. Its binding constraint is space, not capital: once the bins are full, the next truck through the gate has nowhere to go, and taking that corn means either turning it away later or piling it on the ground at a cost. So the bid drops until the trucks go elsewhere.
+
+Two consequences follow. First, the posted bid stops carrying information about the basis and starts carrying information about capacity, so reading it as a market signal is a mistake. Second, the elevator that still has space in that week owns the bottleneck and can set replacement value for everyone around it. That is the whole reason merchants rent ships and own elevators.
+
+**Drill answer.** 28,500 t of corn.
+
+Mental method: multiply by 40 and shave 1.5 percent. 28,500 × 40 = 1,140,000. One and a half percent of that is 17,100. So 1,140,000 − 17,100 = **1,122,900 bushels**.
+
+Exact: 28,500 t × 39.368 = 1,121,988 bu, so the mental route is 0.08 percent high. At 5,000 bushels to a Chicago lot, that parcel is about **224 lots** — worth checking, because a Handysize corn cargo hedged as 228 lots is four lots of naked length nobody put on deliberately.
+
+# The written edition
+
+## Two screens, one commodity
+
+Sugar is quoted twice, and the two quotes are not in the same language.
+
+**No. 11** is the ICE raw sugar contract in New York. It prices raw cane sugar free on board at origin and it is the world price of the raw commodity. It is quoted in US cents per pound. A lot is 112,000 lb, which is 50 long tons, and the tick is one hundredth of a cent — a point, in the softs convention — worth $11.20.
+
+**No. 5** is the ICE white sugar contract in London. It prices refined sugar, delivered, in US dollars per tonne, with 50 tonnes to a lot.
+
+One commodity, one refining step apart, quoted in two different units. The bridge is the tonne itself: 2,204.6 lb, so cents per pound multiplied by 22.0462 gives dollars per tonne. Friday's 17.56 c/lb is $387.13 a tonne. London settled at $520.30. The difference, **$133.17 a tonne**, is the white premium, and it is what the market pays for the act of refining.
+
+## Brazil prices a decision, not a crop
+
+Center-South Brazil is the swing supplier of the world sugar market, and its mills have something no other origin has at scale: a choice.
+
+A cane mill crushes cane, extracts the recoverable sugars, and then sends those sugars down one of two pipes. Crystal sugar for export, or ethanol for the pump. The choice is made continuously through the season, and the plant is built to do both.
+
+The unit that makes it computable is **ATR** — *Açúcar Total Recuperável*, total recoverable sugar. ATR measures the kilos of sugar that could in principle be recovered from a tonne of cane. It is neither sugar nor ethanol; it is the feedstock for both, and it is the basis on which Brazilian growers are paid, which is why the entire industry speaks in it.
+
+The conversion factors are industry standard:
+
+| Product | ATR required |
+|---|---|
+| 1 kg of sugar | 1.0495 kg |
+| 1 litre of hydrous ethanol | 1.6913 kg |
+| 1 litre of anhydrous ethanol | 1.7651 kg |
+
+Take one tonne of ATR and run it both ways at Friday's prices.
+
+| Route | Output | Price | Revenue |
+|---|---|---|---|
+| Sugar | 952.8 kg | $387.13/t | **$368.87** |
+| Hydrous ethanol | 591.3 L | $0.4476/L | **$264.65** |
+| Anhydrous ethanol | 566.5 L | $0.5043/L | **$285.71** |
+
+Sugar wins by $104.22 a tonne of ATR against hydrous — about 40 percent.
+
+```chart
+{"type":"bar","unit":"US$ per tonne of ATR","title":"One tonne of ATR, three destinations","caption":"At Friday's prices the sugar route earns forty percent more per unit of recoverable sugar than hydrous ethanol. That gap, not the sugar price itself, is what sets Brazil's export supply.","source":"Computed from ICE No. 11 October settlement 17.56 c/lb and CEPEA/ESALQ São Paulo ethanol indicators, 28 August 2026, using CONSECANA conversion factors","x":["Sugar","Anhydrous","Hydrous"],"series":[{"name":"Revenue per t ATR","values":[368.87,285.71,264.65]}]}
+```
+
+## Ethanol parity, and what it means when it is far away
+
+Run the ethanol number backwards and you get the figure a desk actually quotes: **ethanol parity**, the sugar price at which the mill is indifferent between the two pipes.
+
+Hydrous earns $0.4476 ÷ 1.6913 = $0.2647 per kg of ATR. One kg of ATR makes 0.9528 kg of sugar. So parity is $0.2647 ÷ 0.9528 = $0.2778 per kg, or **$277.75 a tonne — 12.60 c/lb**. On anhydrous it is 13.60.
+
+The screen was 17.56. Sugar is nearly five cents above parity, which in tonnes is $109 of headroom.
+
+That headroom is not free money. Everything between the mill gate and the ship's rail has to fit inside it: truck freight from the interior, port elevation, terminal costs. But it fits comfortably, and that is the point. It is why Center-South mills have been running their sugar mix at the top of their engineering limit — above half the crop — for two seasons.
+
+Here is how the question gets asked on a desk:
+
+> **TRADER:** Where's parity?
+> **ANALYST:** Twelve sixty on hydrous. Thirteen sixty on anhydrous.
+> **TRADER:** So they're maxed.
+> **ANALYST:** Maxed since April. There's nothing left to switch.
+
+Notice what that exchange settles. Nobody asked where sugar was going. The question was whether Brazil has any switching left in it — and the answer determines what a rally can do. When sugar trades far above parity, the mills have already converted everything they can convert. The switch is spent. A rally from there pulls no additional tonnes out of Brazil; all it can do is ration demand. That is a structurally different market from one where a rally brings supply forward.
+
+## Two demand curves
+
+This is what makes sugar odd. It has two demand curves.
+
+Food demand is inelastic and grows roughly with population. Fuel demand is not about sugar at all — it is about petrol prices, blending policy and the Brazilian real.
+
+The fuel curve does not usually add much growth. What it does is put a **floor** under the price. If sugar falls to parity, the mill stops making sugar. Supply does not taper politely; it switches, at a level you can compute in advance.
+
+And the floor moves. Brazil lifted its mandatory anhydrous blend to 32%. Crude has rallied. The São Paulo hydrous indicator was up 2.85% last week and anhydrous 2.35%. Each of those raises the floor under sugar without a single tonne of sugar changing hands — which is why a sugar analyst spends half their time on energy.
+
+## The refiner's margin, and the trap inside it
+
+Back to the white premium: $133.17 a tonne on Friday.
+
+A refiner buys raws, melts them, strips out the colour and the molasses film, and sells whites. He is not long sugar. He is long the spread between two contracts and short his own cost stack.
+
+He also cannot make a tonne of white from a tonne of raws. Raws are 96 degrees polarisation; the No. 5 contract wants 45 ICUMSA and near-total purity. Add process losses and call it **1.06 tonnes of raws for one tonne of white**.
+
+```chart
+{"type":"waterfall","unit":"US$ per tonne of white sugar","title":"A refiner's margin, Friday's screens","caption":"The whole business is the white premium less the melt loss and the fee. Forty dollars a tonne is what survives — and the loss line grows every time raws rally.","source":"Worked example, episode 14, using ICE No. 11 and No. 5 October settlements of 28 August 2026 and an assumed $70/t refining cost","steps":[{"label":"White sold","value":520.30,"kind":"base"},{"label":"Raws (1.06 t)","value":-410.36},{"label":"Refining cost","value":-70.00},{"label":"Margin","kind":"total"}]}
+```
+
+Now the part people get wrong.
+
+His break-even white premium is **not a constant**. The six percent he loses in the melt is a percentage of the raw price, not a fee. At Friday's raws that loss costs $23.23, so he breaks even at a premium of $93.23. If raws were at 12 c/lb the same loss would cost $15.87 and break-even would be $85.87.
+
+So when raws rally, the white premium has to widen just to leave the refiner exactly where he was. A refiner who watches the premium in dollars rather than against the raw price will believe he is earning more on the way up and discover he is not.
+
+That is the second reason a white premium blows out in a bull market. The first is that everybody wants refined sugar at once, and refining capacity is fixed in the short run. The second is arithmetic.
+
+## Where the two halves meet
+
+The India window and the Brazilian switch are the same story told from opposite ends.
+
+India turning off a 100% duty adds demand that no crop created. Brazil, already at its mix ceiling, cannot answer it with more sugar. When a market's swing supplier has spent its flexibility, incremental demand has to be rationed by price rather than met by supply — and the rationing shows up first in the white premium, because the consuming end wants refined sugar, not raws.

package/ep14.script.txt

@@ -0,0 +1,97 @@
+A tonne of cane standing in a Brazilian field does not yet know whether it is food or fuel. ||| 0.4
+The mill decides. Every day. On a spreadsheet. ||| 0.6
+On Friday, the food answer was worth a hundred and four dollars more than the fuel answer. ||| 0.5
+This is Soft Commodity Trading, episode fourteen. Sugar: two contracts, the switch that sets world supply, and the refiner's margin. ||| 0.7
+Friday's tape. ||| 0.35
+October raw sugar settled seventeen point five six cents a pound, down sixty-three points. A three and a half percent fall. ||| 0.4
+October London whites settled five hundred and twenty dollars thirty a tonne, down eight dollars fifty. ||| 0.5
+Do not read that as a turn. Sugar is still up around twenty-one percent on the month and printed a fourteen-month high two weeks ago. ||| 0.4
+Friday looked like long liquidation into a weekend, not a change of story. ||| 0.5
+The grains went the other way. September Chicago wheat settled seven sixty-seven, up twenty-four and a quarter, and that is a three-year high. ||| 0.35
+September beans twelve seventy-six and a quarter, up nineteen and three quarters. September corn five twelve, up under two cents. ||| 0.5
+Now the policy read. Today it is the whole sugar story. ||| 0.4
+India is the largest consumer of sugar on earth. This month it opened a duty-free import window of one million tonnes, running to the thirty-first of October. ||| 0.4
+The standing tariff is one hundred percent. So that window is not a subsidy. It is a switch. ||| 0.6
+Here is the mechanism, because the headline is not the trade. ||| 0.35
+India's own crop was cut. The monsoon is running thirteen percent below normal. Domestic retail went from forty-eight rupees a kilo in July to about fifty-five in August. ||| 0.4
+A government that cannot let food inflation run turns the tariff off. ||| 0.4
+And the moment it does, the world's largest consumer stops being an occasional exporter and becomes a buyer. ||| 0.4
+That is a two-way move in the world balance sheet out of a single administrative decision. No crop changed. ||| 0.5
+Watch whether the tonnage actually moves. One forecaster thinks no more than five hundred thousand tonnes clears by the deadline. ||| 0.35
+A permission is not a purchase. ||| 0.6
+That is the demand side. Today's lesson is the supply side, and in sugar the supply side is a decision rather than a harvest. ||| 0.7
+Sugar trades on two screens, in two units, and if you mix them up you are wrong by a factor of twenty-two. ||| 0.5
+Number eleven is the raw sugar contract in New York. The world price of raw cane sugar, free on board at origin. ||| 0.4
+It is quoted in cents per pound. A lot is a hundred and twelve thousand pounds, which is fifty long tons. ||| 0.35
+The tick is a hundredth of a cent, which softs desks call a point, and a point is worth eleven dollars twenty. ||| 0.5
+Number five is the white sugar contract in London. Refined sugar, delivered, quoted in dollars per tonne, fifty tonnes to a lot. ||| 0.5
+One commodity, one refining step apart, quoted in two different currencies of measurement. ||| 0.4
+So own the conversion. There are two thousand two hundred and four point six pounds in a tonne. ||| 0.4
+Cents per pound times twenty-two point zero five gives dollars per tonne. ||| 0.4
+Friday's seventeen point five six cents is three hundred and eighty-seven dollars a tonne. ||| 0.4
+London settled five hundred and twenty dollars thirty. The gap, a hundred and thirty-three dollars a tonne, is the white premium. ||| 0.4
+That is what the market pays for the act of refining. Hold it. We come back to it. ||| 0.7
+Now Brazil. ||| 0.35
+Center-South Brazil is the swing supplier of the world sugar market, and its mills have something no other origin has at scale. ||| 0.4
+A choice. ||| 0.5
+Crush cane, extract the sugars, then send those sugars down one of two pipes. Crystal sugar for export, or ethanol for the pump in São Paulo. ||| 0.5
+The unit that makes the choice computable is A T R. Açúcar Total Recuperável. Total recoverable sugar. ||| 0.4
+It measures the kilos of sugar you could in principle recover from a tonne of cane. It is not sugar and it is not ethanol. It is the raw material for both. ||| 0.4
+And it is how Brazilian growers are paid, which is why the whole industry speaks in it. ||| 0.5
+The conversion factors are industry standard and published. ||| 0.35
+One kilo of sugar takes one point zero five kilos of A T R. ||| 0.3
+One litre of hydrous ethanol, the ninety-five percent grade that goes straight into a flex-fuel tank, takes one point six nine kilos. ||| 0.5
+So take one tonne of A T R and run it down both pipes. ||| 0.4
+Sugar pipe. You get nine hundred and fifty-three kilos of sugar. At Friday's three hundred and eighty-seven dollars a tonne, that is three hundred and sixty-nine dollars. ||| 0.5
+Ethanol pipe. You get five hundred and ninety-one litres of hydrous. At Friday's São Paulo mill gate indicator, forty-four point seven six cents a litre, that is two hundred and sixty-five dollars. ||| 0.5
+Three sixty-nine against two sixty-five. Sugar wins by a hundred and four dollars per tonne of A T R. That is forty percent. ||| 0.7
+Now run it backwards, because that is the number a desk actually quotes. ||| 0.4
+Ethanol parity. The sugar price at which the mill is indifferent between the two pipes. ||| 0.4
+On Friday's ethanol, parity is twelve point six cents a pound. The screen was seventeen point five six. ||| 0.5
+Sugar is five cents above parity. In tonnes, a hundred and nine dollars. ||| 0.5
+That gap is not free money. Everything between the mill gate and the ship's rail has to fit inside it. Truck freight from the interior, port elevation, terminal costs. ||| 0.4
+But it fits, and it fits comfortably. That is the point. ||| 0.5
+Which is why Center-South mills have been running their sugar mix at the top of their engineering limit, above half the crop, for two seasons. ||| 0.6
+Here is how that gets said out loud. ||| 0.5
+TRADER: Where's parity? ||| 0.25
+ANALYST: Twelve sixty on hydrous. Thirteen sixty on anhydrous. ||| 0.25
+TRADER: So they're maxed. ||| 0.25
+ANALYST: Maxed since April. There's nothing left to switch. ||| 0.6
+Notice what that exchange settled, and what it did not. ||| 0.4
+Nobody asked where sugar was going. The question was whether Brazil has any switching left in it. ||| 0.4
+When sugar trades far above parity, the mills have already converted everything they can convert. The switch is spent. ||| 0.4
+A rally from there buys no additional tonnes out of Brazil. All it can do is ration demand. ||| 0.5
+And that is a different market from one where a rally pulls supply forward. ||| 0.7
+This is the first thing that makes sugar structurally odd. It has two demand curves. ||| 0.4
+Food demand, which is inelastic and grows roughly with population. ||| 0.35
+And fuel demand, which is not about sugar at all. It is about petrol prices, blending policy and the Brazilian real. ||| 0.5
+The fuel curve puts a floor under sugar. ||| 0.4
+If sugar falls to parity, the mill stops making sugar. Supply does not taper. It switches, at a price you can compute. ||| 0.5
+And the floor moves. Brazil lifted its mandatory anhydrous blend to thirty-two percent. Crude has rallied. The ethanol indicator was up nearly three percent last week. ||| 0.4
+Every one of those raises the floor under sugar without a single tonne of sugar changing hands. ||| 0.4
+Which is why a sugar analyst spends half their time on energy. ||| 0.7
+Back to the white premium. A hundred and thirty-three dollars a tonne on Friday. ||| 0.5
+A refiner buys raws, melts them, strips the colour and the molasses film, and sells whites. ||| 0.4
+He is not long sugar. He is long the spread between two contracts and short his own cost stack. ||| 0.5
+So work it per tonne of white. ||| 0.4
+He cannot make a tonne of white out of a tonne of raws. Raws are ninety-six degrees polarisation. Pol, the purity measure. Whites are ninety-nine point eight. ||| 0.4
+Add process losses and call it one point zero six tonnes of raws for one tonne of white. ||| 0.5
+Three hundred and eighty-seven dollars, times one point zero six, is four hundred and ten dollars of raw sugar. ||| 0.4
+Refining cost, energy and lime and labour and packing, call it seventy dollars. ||| 0.35
+He sells at five hundred and twenty dollars thirty. ||| 0.4
+Four hundred and ten plus seventy is four hundred and eighty. He keeps forty dollars a tonne. ||| 0.6
+Now the part people get wrong. ||| 0.4
+His break-even white premium is not a constant. ||| 0.5
+The six percent he loses in the melt is a percentage of the raw price. At Friday's raws that loss costs him twenty-three dollars, so break-even is ninety-three. ||| 0.4
+If raws were down at twelve cents, the same loss would cost him sixteen, and break-even would be eighty-six. ||| 0.5
+So when raws rally, the white premium has to widen just to leave the refiner exactly where he was. ||| 0.5
+A refiner watching the premium in dollars, rather than against the raw price, will believe he is earning more on the way up and discover he is not. ||| 0.5
+That is the second reason a white premium blows out in a bull market. The first is that everyone wants refined sugar at once. The second is arithmetic. ||| 0.7
+What to keep. ||| 0.4
+Sugar is quoted twice, one refining step apart. Cents per pound in New York, dollars per tonne in London, twenty-two point zero five between them. ||| 0.5
+Brazil's mills price a choice rather than a crop, and A T R is the unit of that choice. Ethanol parity is where the choice flips. ||| 0.5
+Trading far above parity means the switch is already spent, and a further rally buys no new tonnes. ||| 0.5
+And a refiner's break-even white premium rises with the raw price, because his loss is a percentage and not a fee. ||| 0.7
+Next time: cotton, rice and juice. Including on-call sales, the mechanism that forces a mill to buy into a rally it hates. ||| 0.5
+Four questions waiting in the notes, with fully worked answers. The first one is the sugar-ethanol switch, end to end. ||| 0.4
+This has been Soft Commodity Trading. ||| 0.7

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       <title>Ep 14 — Sugar: Two Contracts, the Switch and the Refiner</title>
-      <description><![CDATA[<p>Sugar is quoted twice, one refining step apart, and the gap between the two screens is what the market pays for refining. Then Brazil's mills, where supply is a daily decision between food and fuel, and ethanol parity is the price at which that decision flips.</p>]]></description>
-      <itunes:summary>Sugar is quoted twice, one refining step apart, and the gap between the two screens is what the market pays for refining. Then Brazil's mills, where supply is a daily decision between food and fuel, and ethanol parity is the price at which that decision flips.</itunes:summary>
+      <link>https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep14.html</link>
+      <description><![CDATA[<p>Sugar is quoted twice, one refining step apart, and the gap between the two screens is what the market pays for refining. Then Brazil's mills, where supply is a daily decision between food and fuel, and ethanol parity is the price at which that decision flips.</p><p><a href="https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep14.html">Read this episode, with the charts, the glossary and the quiz &rarr;</a></p>]]></description>
+      <itunes:summary>Sugar is quoted twice, one refining step apart, and the gap between the two screens is what the market pays for refining. Then Brazil's mills, where supply is a daily decision between food and fuel, and ethanol parity is the price at which that decision flips.
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+Read this episode: https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep14.html</itunes:summary>
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