The decline that has begun in the sugar market is also affecting the trade in member delivery certificates (LLBs). While amounts between €40 and €50 were paid last year, a return to that level seems unlikely for the time being.
Prices are currently around €35 per LLB, although this varies by zone: the closer the beets are grown to the factory, the higher the price generally is. In practice, the compensation also depends heavily on what growers agree among themselves. For example, today (November 25th) a report appeared in the DCA transaction app about LLBs being traded in the southern region for €30. According to traders, this is not an exceptional low, although the sugar market is under considerable pressure. This pressure is such that Cosun was forced to reduce the already established allocation again: from 100% to 90%.
Influencing construction plans
Currently, the allocation percentage is influencing the cropping plan of many beet growers. They have to reassess at the plot level whether to fully sow the field or not. The question, however, is what the alternative is. Therefore, there are few indications from the trade that the average arable farmer will definitively abandon beet cultivation. Most farms that are ceasing beet cultivation have been considering it for several years, it is said.
What's becoming increasingly common in the market is the temporary rental of LLBs. Many growers are currently unsure whether or not to fully sow their fields with sugar beets, and leasing offers a practical interim solution. More importantly, with leasing, the individual member continues to accrue UB rights (Beet Delivery Benefit Scheme), which is another reason for many growers not to simply sell their LLBs.
Alternatives determine the future of beet cultivation
Many arable farms are grappling with the question of what constitutes a good alternative to sugar beets. According to the trade, most shifts in the sale or disposal of LLBs are occurring in areas where many vegetable crops are grown; more cultivation options are readily available there. In such areas, the combination of vegetable cultivation and flower bulbs is a more attractive alternative than in regions where the crop rotation is traditionally narrower. Last year, more and more LLBs were exported to Germany. Beet cultivation just across the border near Bunde (Lower Saxony) has expanded significantly in recent years. German arable farmers are required by law and regulations to implement greater crop diversification, and beets are clearly gaining ground in the region. Cosun purchases the beets from German growers. However, even in these areas, interest in LLBs is steadily declining, while two years ago, prices of €60 per LLB were still being paid, according to the trade.
Based on recent market developments, the volume of sugar production this season, and the expected stock levels at the start of the next campaign, Cosun concludes that for the beet sector's profitability, it would be wiser to produce slightly less sugar next year. However, this doesn't necessarily mean we're heading for a bad year. The point is that producing less at a higher price is ultimately more profitable. For the LLB trade, this could potentially lead to a market revival.