Thursday, January 15, 2009 Bacaoco: DX, Accelerate export or re-align? By Butch Bacaoco Cane Points
AMID NFSP’s calls to re-align DX sugar into another sugar class, some groups of sugar producers intend to embark on a "unified sale" of their D sugar next week. They will pool all their D sugar and conduct a joint bidding for the entire lot.
It is believed that, with bulk bidding, D sugar will no longer be diverted into the local market because the available volume can handily reach one shipload, thereby making it easier to export the sugar immediately. Once that volume of sugar is physically removed from the country, it is hoped that domestic sugar prices will improve.
The move is, indeed, laudable. SRA and the producers themselves should ensure that the sugar is actually shipped out of the country and not just exported on paper. That will surely boost domestic prices and will benefit all producers.
A very important aspect to consider in the "unified sale" is arriving at the best price for the entire lot. The consolidated volume should command a substantially higher price compared to what individual associations might get if they independently bid on a far lesser volume of their D sugar.
However, the "best price" is subject to prevailing world market price and the foreign exchange rate, both of which are also influenced by numerous variables and intangibles.
For instance, world raw sugar for March delivery was priced at 11.53 US cents per pound last January 13 at the New York Coffee, Sugar and Cocoa Exchange. At the present forex rate of P47.6/$, it amounts to P605 per bag. Last January 9, it reached 12.23 US cents per pound and at a forex rate then of P47/$, it translates to P632.29 per bag. There is a difference of P25/bag between the two periods.
If the forex rate last January 9 was lower than P47/$, the difference per bag from the January 13 price would be less than P 25, even if the January 13 price was lower than the January 9 price. If the forex rate last January 9 was higher than P47/$, the difference will naturally be higher than P25/bag, too. If the 12.23 US cents per pound was maintained until January 13, it would have reached P641.70 per bag based on January 13 forex rates.
Once the unified sale is accomplished, some sectors might buy D sugar at a higher price than the unified sale from other groups that did not join the consolidated bidding. The purchase will very likely be at just a fraction of the unified volume but, if it is bought at a higher price, it will sow discord among those who embarked on the unified sale.
Even if evil motive is taken out of the picture, there still remains the possibility of traders buying D sugar by February or March at a price higher than the unified sale price. This can simply be attributed to the fluctuations in world sugar prices and forex rates but, all the same, it might still plant the seed of discontent among some producers.
It can be recalled that, about three years ago, the federations embarked on the collective sale of D sugar. After the bidding, some associations who did not support the idea were able to sell their D sugar at around P50 more per bag than the collective sale, even though the actual volume purchased at a higher price was just a small fraction of the collective sale volume. This caused headaches and heartburns to countless producers.
Producers who committed to the "unified sale" should bear these things in mind and stick to their commitments.
On the other hand, NFSP's request to re-align the DX to another classification also has very strong merits. It ensures that the country will have sufficient sugar supply and a comfortable strategic reserve at the end of the crop year. More important, it gives producers the opportunity to get better prices for their sugar if this "parked" DX is eventually re-aligned to B sugar because of possible production shortfalls.
SRA Administrator Lito Coscolluela has been pretty clear on the issue. He will wait until actual production figures and verified farm audit reports come in by the end of the month or early February. Only after a thorough study of the actual figures and reports will the SRA Administrator and the Sugar Board make a decision on the DX sugar classification.
In these troubled times for the industry, stakeholders cannot afford to be fence sitters. Leaders should not be perceived as apathetic to the needs of their constituents. They have to devise ways and take risks in working for what they honestly believe are solutions to pressing problems. After all, is this not the essence of leadership?
For reactions and suggestions, email bbacaoco@yahoo.com.
