Buyer Beware – Getting Caught In a Sugar Scam
When I was new to sugar trading, I had an unpleasant experience that I will share with you all now in order to perhaps help you in your own sugar buying endeavors. It involves being caught out in an attempted sugar scam involving large amounts of Brazilian ICUMSA 45 sugar.
In my initial forays into buying sugar I had started off small, being cautious, trying to learn about the industry as I went, and in doing so I found a Brazilian sugar mill which fulfilled several small sugar orders for me. Buoyed with the success of receiving several orders at a nearby national port, and needing to expand my operations, I leapt at the opportunity when the mill offered me a very cheap deal on a multi million ton shipment of sugar. I had heard that these types of shipments were rare, or didn’t exist, but because I had had good experiences with my supplier up to that point, I figured I was getting a special deal.
That special deal turned out to be bad news. The proof of product sent to me was a fake. There was no warehouse holding several million tons of ICUMSA 45 sugar especially for me. The sugar mill then tried to sell me smaller amounts of sugar at a higher price. Needless to say, I was not impressed, and cut ties with that mill immediately. I was lucky in some ways, I hadn’t lost money on the deal, but I had lost precious time, and I encountered supply problems due to having relied upon this deal.
You read about scams and dishonest dealers and brokers, but I didn’t realize that the mill themselves could sometimes be unscrupulous. This was a very hard and somewhat costly lesson to learn. Being an analytical sort of fellow, I went through and analyzed exactly where I had gone wrong.
The first mistake I had made was not being fully aware of how the Brazilian sugar industry works. I had assumed that because Brazil is the world’s largest producer and exporter of sugar, that ordering and obtaining large amounts of ICUMSA 45 would not be a problem. Unfortunately, this is not the case. Brazil does produce large amounts of sugar every year, but the bulk of this sugar is VHP raw sugar, not ICUMSA 45. Very little ICUMSA 45 is actually produced in Brazil, and the majority of it is sold long before it is produced. If I wanted an ongoing sugar supply, then I would have to do as others did, and make a long term agreement for multiple smaller shipments.
I also learned that Brazil is not as developed as I had expected. In spite of having a multi billion dollar sugar industry, the roads and transport systems are still pretty bad. You’d think that sugar would be transported by train, but most of the time it is sent by truck on badly made and maintained roads. Then there are the ports, which are relatively underdeveloped and simply cannot take massive sugar loads either. The more I learned, the more surprised I was. Brazil seemed to have a huge logistical problem just getting the more common smaller shipments of sugar out of the country, let alone the massive orders I was seeking.
The other thing I learned was that sugar is almost always traded at a set price which is easily found by comparing several soft quotes, or looking up the Intercontinental Commodities Exchange. You just don’t get large discounts on sugar because it is a commodity with a value that is fairly fixed across the board, especially when it comes to Brazilian ICUMSA 45, which seems to always be in high demand, even in high production years.
If I was to advise a new buyer to the market now I would tell them to do their homework extensively. Don’t be lazy and think that just because a mill or a broker can supply one amount of sugar that they will be able to supply you with glorious mountains of the stuff. Researching the country where the sugar is produced as well as the mill you are hoping to do business with is also a good idea. Sure, these things can be time consuming, but its better to invest the time beforehand and avoid nasty surprises than simply to take deals because they seem to be ‘once in a lifetime’ opportunities.
The old adage holds true in sugar buying too: if it seems too good to be true, it probably is.