Tuesday, 31 July 2012
You may recall that last year QSL implemented the Harvest Pool in response to the Pooling and Pricing Review’s recommendations. This pool helps ensure QSL and the industry is well prepared for unforeseen and extreme weather conditions.
The Harvest Pool is a key tool under the Raw Sugar Supply Agreements (‘RSSA’) used to manage production risk. All Suppliers at the pricing declaration date (28 February 2012) must have a minimum of 35% of their RSSA supply estimate allocated to the Harvest Pool. The balance (up to a maximum 65%) can then be allocated to Committed Sugar Pools.
In this article I will discuss the two components that make up the Harvest Pool:
- Production Buffer Component: which is used to manage risk of production shortfalls; and
- Storage Peak Component: which is sold and priced in season as there is a limit on the amount of sugar that can be stored in the bulk sugar terminals.
Production Buffer Component - Depending on the total amount of RSSA exports and the storage available to QSL in the bulk sugar terminals for RSSA exports, approximately 50% of raw sugar in the Harvest Pool at the declaration date is designated to act as a buffer against crop shortfalls. This percentage changes from season to season depending on available storage and the size of the crop, when harvesting is expected to commence and finish and the expected shipping programme from customers.
This portion of sugar under the RSSA is referred to as the Harvest Pool’s Production Buffer and it will only be sold and priced once it has been delivered to QSL.
The buffer is not sold or priced until it is delivered to enable weather events during the season to be managed.
Storage Peak Component - Due to logistical and marketing constraints, an element of the Harvest Pool needs to be sold and shipped in season. This component is known as the Storage Peak Component and must be sold and priced before or during the season.
How do changes in Supply estimates affect the Harvest Pool?
Suppliers’ forecasts and estimates of their total export supply tonnage can vary after the pricing declaration date and any changes to these forecasts are added to or subtracted from the tonnage of raw sugar allocated to the Harvest Pool. If a supplier reduces its total forecast export tonnage, it will reduce the overall quantity of raw sugar QSL has to price and market in the Harvest Pool.
Where possible reductions are taken from the Storage Peak first (the sugar that can be sold and priced for shipment during the season) and then from the Production Buffer Component , if necessary. If all the tonnage allocated to the Storage Peak Component is already sold when the crop reduction is advised to QSL then the reduction is taken from the Production Buffer Component.
Further detail on the Harvest Pool along with examples of how much tonnage may be in each component above, and all QSL pooling products are available on our website.