About sugar buying for jobbers Part 3

The usual procedure followed in sugar exchange operations is for the buyer to close out his exchange transaction prior to the period calling for delivery and purchasing actual sugar from the refiners, executing both transactions practically simultaneously.

Possibly the most important problem in connection with the organization of any commodity exchange is to reduce the possibility of corners, however remote, to the smallest possible degree.

In the case under discussion, the Chicago delivery point, by virtue of its accessibility for producers and consumers from all parts of the country, operates to that end.

Practically every refiner of cane sugars in the East and West, as well as the Southern refiners, carries large stocks in Chicago, and its favorable location in connection with the beet sugar industry also makes it highly desirable. Its situation in regard to the offerings of the Louisiana producers is also an additional protection and advantage of considerable importance.

The Exchange-licensed warehouses in Chicago are under the direct and constant supervision of Exchange representatives. Facilities are provided for testing and grading sugar so as to maintain Exchange quality standards.

When are Refiners' Prices and Exchange Quotations in line?

Since exchange quotations for refined sugar futures are net cash ex-exchange-licensed warehouse, Chicago, while refiners' quotations are f.o.b. refinery, less 2% for cash, it is obvious that there must be a difference between refiners' prices and exchange quotations.

It is equally obvious that the differential should approximate the freight rate between Chicago and the Seaboard, where the refiners are located, with allowance also for the cash discount. When the markets are in line such is the case. Conversely, when the differential is higher or lower, the markets are out of line.

Therefore, in order to tell whether the markets are out of line, or to what extent, it is necessary to determine on a differential to represent the normal difference between the two markets. There is no one figure, however, that will satisfy all conditions at all times, for the reason that there are various freight rates between the Seaboard and Chicago. It is inaccurate, for instance, to use 63 as the basis for the normal differential. The 63 rate is one rate--the all-rail freight rate from New York to Chicago.

Other important routes and rates are as follows:

Routing: Freight Rate:

New Orleans--Chicago (barge and rail) $0.50[1]

New York--Chicago (rail and lake) .58 New Orleans--Chicago (all rail) .60 Philadelphia--Chicago (all rail) .61 New York--Chicago (all rail) .63 Savannah--Chicago (all rail) .63 Boston--Chicago (all rail) .63

[1] The cheapest routing (48) takes about two weeks' more time in transit than the New York all-rail routing (63). Interest charges on finances involved, etc., for this extra period will bring the expense of this routing to approximately 50.

After a study of the amounts of sugar shipped over these various routes we have arrived at an arbitrary figure to represent the normal differential between refiners' prices and exchange quotations. We believe that 57 will serve as a safe basis for calculation, but 58 or 59 might be equally--or more--accurate. In fact, anyone is ent.i.tled to an opinion. 57 is our opinion. It is not an average of freight rates, but is an arbitrary figure.

When the markets are in line, using 57 as a basis for calculation, 2% should be deducted from refiners' prices, and 57 added to determine what Exchange quotation should be. Conversely, 57 should be deducted from Exchange quotations and 2% added to determine what refiners'

prices should be.

If you are willing to accept 57 as a safe figure, you may find the following chart useful in determining the condition of the market:

ARE REFINERS' PRICES AND EXCHANGE QUOTATIONS IN LINE?

Based on a 57 differential and 2% cash discount

When Exchange Refiners' Quotations Prices Are Should Be

4 4.49 4.05 4.54 4.10 4.59 4.15 4.64 4.20 4.69 4.25 4.73 4.30 4.78 4.35 4.83 4.40 4.88 4.45 4.93 4.50 4.98 4.55 5.03 4.60 5.08 4.65 5.13 4.70 5.18 4.75 5.22 4.80 5.27 4.85 5.32 4.90 5.37 4.95 5.42 5.00 5.47 5.05 5.52 5.10 5.57 5.15 5.62 5.20 5.67 5.25 5.71 5.30 5.76 5.35 5.81 5.40 5.86 5.45 5.91 5.50 5.96 5.55 6.01 5.60 6.06 5.65 6.11 5.70 6.16 5.75 6.20 5.80 6.25 5.85 6.30 5.90 6.35 5.95 6.40 6.00 6.45 6.05 6.50 6.10 6.55 6.15 6.60 6.20 6.65 6.25 6.69 6.30 6.74 6.35 6.79 6.40 6.84 6.45 6.89 6.50 6.94 6.55 6.99 6.60 7.04 6.65 7.09 6.70 7.14 6.75 7.18 6.80 7.23 6.85 7.28 6.90 7.33 6.95 7.38 7.00 7.43 7.05 7.48 7.10 7.53 7.15 7.58 7.20 7.63 7.25 7.67 7.30 7.72 7.35 7.77 7.40 7.82 7.45 7.87 7.50 7.92 7.55 7.97 7.60 8.02 7.65 8.07 7.70 8.12 7.75 8.16 7.80 8.21 7.85 8.26 7.90 8.31 7.95 8.36 8.00 8.41 8.05 8.46 8.10 8.51 8.15 8.56 8.20 8.61 8.25 8.65 8.30 8.70 8.35 8.75 8.40 8.80 8.45 8.85 8.50 8.90 8.55 8.95 8.60 9.00 8.65 9.05 8.70 9.10 8.75 9.14 8.80 9.19 8.85 9.24 8.90 9.29 8.95 9.34 9.00 9.39 9.05 9.44 9.10 9.49 9.15 9.54 9.20 9.59 9.25 9.63 9.30 9.68 9.35 9.73 9.40 9.78 9.45 9.83 9.50 9.88 9.55 9.93 9.60 9.98 9.65 10.03 9.70 10.08 9.75 10.12 9.80 10.17 9.85 10.22 9.90 10.27 9.95 10.32 10.00 10.37

(This chart works both ways. That is, when the exchange quotation is given, if the markets are in line the refiners' prices should be as shown in the first column.)

It should be borne in mind that the above calculations are based upon a normal difference in price of 20 per hundred pounds between beet and cane sugars, which is the ruling difference as quoted in the Exchange contract. Should beet refiners elect to sell at greater discounts than 20 points under cane refiners' Seaboard prices, the amount in excess of 20 points would have to be subtracted from our arbitrary figure of 57.

The Function of the Sugar Broker

If you should organize your company so that it could attend to all the details of sugar buying economically, you would probably still profit from the a.s.sistance of a sugar broker whose specialty is sugar buying, whose horizon is a sugar horizon, whose thoughts are sugar thoughts and who must necessarily know more about sugar than the average buyer would ever consider it desirable to know.

The sugar broker's service to you is unaffected by prices--his prices and all other brokers' prices are the Exchange prices; his commissions are based on the same percentages as all other brokers' commissions.

His only distinction can come from the actual service he can render.

This service may be good or poor, depending upon whether his experience, his organization, his information and his judgment are good or poor. If, added to his knowledge of sugar, he also possesses a broad knowledge of economic fundamentals and a perspective upon and contact with world activities as they affect all phases of the business of sugar, his service will be many times more valuable than if he were limited by a small organization, by a definite locality or by experience in only a few phases of this business.

A sugar broker who merely _accepts and transacts orders_ is giving no service worth the name. To give service in accordance with the highest modern standards, he must stand as an adviser, as a constant seeker after opportunities which will benefit his clients, as a partner whose interest in his clients' profits and progress equals his interest in his own.

Our experience has convinced us that the client secures the greatest amount of protection in filling his sugar needs when one broker handles all sugar transactions.

These exchange operations should be carried out when the market is out of line in your favor. You need the best kind of advice, based on an intimate knowledge of your business.

A single brokerage house becomes thoroughly acquainted with the client's business and personnel, with the result that the two organizations work in harmony virtually as partners, confusion and misunderstandings are avoided, quicker and more advantageous transactions are made possible.

The choice of that broker should be a matter of great care, for in addition to the willingness to serve, he must have the facilities and the financial stability. For, bear in mind that the broker with whom you deal is the responsible party for the fulfillment of the contract.

Your contract is as good only as the reliability of your broker.

Lamborn & Company has become known throughout this country and abroad as an inst.i.tution for the service of all those who have a business interest in sugar.

Lamborn Sugar Service is rendered through our head office at 132 Front Street, New York, and through branch offices in Philadelphia, Chicago, Savannah, New Orleans, Kansas City, Mo. and San Francisco.

Lamborn Service in all its phases is available to you as a jobber.

We shall be very glad to explain either in person or by letter what a brokerage relationship with us involves, how it may be accomplished and how transactions may be carried out.

LAMBORN & COMPANY

_Sugar Headquarters_

132 Front Street: New York

7 Wall Street: New York (Securities)

Havana and Cienfuegos, Cuba Paris, France THE LAMBORN COMPANY LAMBORN & CIE

_Branches in the United States_

Philadelphia Savannah New Orleans Chicago Kansas City San Francisco