White Premium Support for Sugar

In white sugar trade there are generally 2 types of futures, nowadays both traded under the ICE:

-        The Sugar #5 or White Sugar futures.

Traditionally these are often called London futures as they were originally traded on the London exchange (now acquired by the ICE in NY)

-        The Sugar #11 or Raw Sugar futures.

Traditionally these are seen as NY futures as they were traditionally traded in NY as opposed to the Sugar #5 futures

White Premium is the name used for the price differential between these two types of futures. In white sugar trading it is common to price and hedge sugar with both types of futures, and combinations of them. This may result in what is called cross market rolling and cross market pricing in Agiblocks.

Example: Sugar purchased in South America is often priced using Sugar #11 futures. When this sugar is sold in Europe, the same sugar may sometimes get priced against Sugar #5 even if it is not really white sugar.

To accommodate this, traders will then move one of the two contracts to the other market and hedge the difference by trading the white premium (buy 1 type of futures and sell the other). This is called cross market position rolling, and it requires trading the White Premium to hedge the differential between the 2 markets.

-        White sugar purchased under an agreement to price it against Sugar #5 futures, may in reality get priced in 2 steps (in either order):

This is an example of cross market pricing. In one pricing, you will need to sell Sugar #11 futures to hedge it.  In the other pricing you will need to sell Sugar #5 futures and buy (back) Sugar #11 futures. At the end, the net result will be the same number of Sugar #5 futures as when you would not have applied these steps.