This set of futures-linked sugar beet contract Frequently Asked Questions provides details about an innovative new arrangement which gives UK sugar beet growers an option to choose a more flexible pricing mechanism for the beet they produce.
Given AB Sugar own some of Czarnikow Group Limited, how can I be sure BS can't influence CGL or see my pricing decisions?
AB Sugar have owned shares in CGL since 1991. CGL act as a totally independent company, working with numerous producers and multinational sugar consumers worldwide. Your pricing with Czarnikow will be entirely independent of British Sugar’s pricing, meaning that neither party will see the price achieved by the other. Czarnikow operate separately from British Sugar, so confidential information such as pricing will not be shared.
When do I get paid for beet on that contract?
You will be paid within 24 hours of the British Sugar’s standard payment terms. British Sugar will make payment to Czarnikow under the same standard terms as for other contracts, and Czarnikow will pay you for this beet within 24 hours of receipt of funds from British Sugar.
How am I paid?
The payment for beet value on this contract will come from Czarnikow within 24 hours of British Sugar’s standard payment terms, who will provide an invoice and confirm the value achieved. You will also receive a beet invoice as usual from British Sugar, with a ‘nil’ value attributed to the beet on this contract, but all other payments (LDA, transport allowance, payments for beet on other contracts, BBRO and NFU levy deductions) will come directly form British Sugar as usual.
Are there any risks to me of signing the novation agreement?
If you choose to sign the novation agreement, then this will become a binding contract. The beet will still need to be physical delivered to BS, but the pricing of that beet will now be executed via Czarnikow.
Given ICE White Sugar futures market is priced in US$ and growers are paid in £, what effect will the £/$ FX rate have on what growers actually receive?
The price quoted to you via Czarnikow’s online portal CzApp will be in GBP/mt beet so the USD/GBP FX rate will impact final beet prices. Prices will change regularly depending on the value of the ICE White Sugar futures market and the forward USD/GBP exchange rate at any moment in time. Growers will however be guaranteed to receive the price they see on the pricing platform when they choose to execute pricing. That price will be fixed.
Can NFU Sugar recommend whether or not I should put some beet on this contract?
Whether or not you choose to put a portion of your beet on this contract is completely at your discretion. The NFU does not give any endorsement or recommendation regarding the options contained within the contract offer.
Is there any downside/risk of signing up to this contract?
Remember that you have made a commitment to British Sugar to deliver the agreed tonnage and you are responsible for meeting this requirement in full regardless of the price(s) that you receive for the beet. Please consider the risk of under-delivery, if (for example) your crop fails to grow or cannot be sold due to contamination or disease. In such circumstances, CGL may seek a lump sum payment from you if you have committed a certain tonnage to their flexible pricing structure which you can no longer honour. British Sugar may also impose a financial penalty if the agreed tonnage set out in the Contract Pack is not delivered.
The index-linked contract price means that the price of the beet will change over time until you make use of the hedging arrangements offered by CGL to fix a particular price. Markets change constantly due to various factors, and the price will go up and down over the course of the time that you engage CGL. This means that there is no guarantee that the flexible pricing option will result in you generating more income from this option instead of continuing with the current fixed price approach offered by British Sugar.
You may want to consider taking out suitable insurance cover to protect against crop failure and contamination. Please contact your insurance provider to explore what options might be available to you.
There is a "counterparty risk" that CGL may face financial difficulties of their own (e.g. insolvency) which could result in them not being able to honour their pricing arrangement with you. Please note CreditSafe lists Czarnikow at very low risk.
When is the first day I can price my beet?
In the pilot year, the beet pricing period will commence once Czarnikow have prepared their pricing app ‘CzApp’. This likely to be towards the end of 2020.
The intention in future years is for the pricing period to commence once you have completed the contracting process.
When is the last day I can price my beet?
For the 2021 crop, the final day you can price your beet is 1 September 2021.
What happens if I don't price my beet?
Any beet not priced by 1 September 2021 will be priced automatically at the price available that day.
Why can I only put up to 10% of my CTE on this contract?
This is a pilot for the 2021 crop, requiring new systems to be designed and the pricing app to be built. Therefore, we need to ensure the processes work correctly and ensure no individual grower is overexposed should a difficulty come to light.
Is there a minimum CTE for me to qualify?
The contract can only be signed up to in 50 tonne parcels, so given the requirement to put no more than 10% of your CTE onto the pilot, you must hold at least 500t of CTE to participate this year.
Will I get any training on the Czarnikow app ahead of the pricing window going live?
Czarnikow will arrange a webinar for those growers who have novated contracts in order provide training and to answer specific questions prior to the pilot going live. This will be some time towards the end of the year.
How will my LDA, levy etc be paid on tonnage on the futures contract?
All other payments, aside from the beet value on this contract, will come directly for British Sugar as usual.
Who can advise me on when I should price my beet on this contract?
Any pricing decisions are strictly for each individual grower. Czarnikow will provide some market analysis on CzApp, but this does not constitute pricing advice. Access to CzApp analysis can be provided to all growers not only those participating in the 2021 crop pilot.
Why does my beet have to be priced by Sept 1st? Why can’t I price it through to when it’s delivered to British Sugar in the 2021/22 campaign?
Beet will need to be priced by 1 September 2021 in order to ensure each grower’s beet value on this contract is known prior to the campaign. As campaign and delivery dates are liable to change, the 1st September date ensures the pricing process will not be impacted by the campaign.
What’s the minimum tonnage trade I can execute each day? Why is it a minimum of 50t of sugar beet?
Trades must be executed in minimum 50t parcels so that appropriate volumes can be accumulated for execution on the market. There would be no daily limit, the only restriction being the total volume committed by you under this pilot.
What happens if I don’t deliver all of the tonnes I’ve priced through the futures contract?
The risk of this has been minimised by the limit to the CTE an individual grower can put on this contract. Furthermore, British Sugar will allocate the first beet you deliver against this contract, meaning that even in a case of severe yield loss you are very unlikely to underdeliver against this contract, provided you plant enough crop area in the first place. However, in the event that you still weren’t able to deliver your beet priced under the novation agreement then there could be a financial penalty linked to Czarnikow having to close out ICE White Sugar futures and USD/GBP positions that had been established to provide you with your final pmt beet price.
Will I be prompted to movements in the market, and reminded that I am yet to fix the price on this volume?
This is not currently intended as part of the development and functionality of CzApp during the 2021 crop pilot.
If I fix the price, and subsequently the market strengthens, can I re-buy and sell again?
No. Once you fix the price, that parcel of beet will have been fixed and you will not be able to unwind and reprice at a later date.
What is the highest and lowest price I can reasonably expect to receive for the 2021 cropping year?
ICE White Sugar Futures and USD/GBP FX are volatile markets making the potential range for highest and lowest likely prices fairly wide.
What impacts the market value, and how can I find information on this to make informed decisions on pricing my contract?
Global sugar supply and demand dynamics will affect the price evolution and direction of the ICE White Sugar futures market. CzApp users will have access to analysis around many of these sugar dynamics although the information found on this platform will not constitute pricing advice.
More from NFU Sugar:
- The Beet Brief: Bringing the sugar market to you
- Meet the NFU Sugar Board
- Campaign data and beet reception