The Board of Directors authorized the Company to have a trading book to trade outright sugar futures, options, spreads and white-raw differentials to a limit of 25,000 metric tonnes. It was also agreed that a report on all activities would be reviewed quarterly at each Board meeting and that all trading book activities would be discontinued if trading losses of $250,000 were accumulated. Any mark-to-market gains or losses on any open positions of the trading book at year end, as well as gains or losses on any liquidated positions of the trading book, are recognized in the Company’s adjusted earnings. An income of approximately $0.3 million was earned in fiscal 2013 on the trade book. 

## Beet Sugar 

As noted, the Company purchases sugar beets from the Growers under a fixed price formula plus a scale incentive when raw sugar values exceed a certain price level. Except for sales to the U.S., under the export quota, to HFCS-substitutable accounts, and for other export opportunities, all other sales are made using the same formula as cane sugar, following the world raw sugar price. 

The Board of Directors authorized the Company to hedge forward up to 70% of the Taber sales to be made under the raw sugar formula as long as a beet sugar contract was signed with the Growers for those years. This was done to allow the Company to benefit from a sudden rise in the raw sugar market. Any gains earned (if a sales contract is entered at a lower raw value) or losses incurred (if a sales contract is entered at a higher raw value) when those positions are unwound, are recognized in the period when that quantity of beet sugar is delivered. This is referred to as the Taber pre-hedge. 

The Company has no volume under the pre-hedge program for fiscal 2014 as the world raw sugar market currently offers few opportunities. 

## Natural Gas 

The Board of Directors of Lantic approved an energy hedging policy to mitigate the overall price risks in the purchase of natural gas. 

On average, the Company will purchase approximately 3.0 million gigajoules of natural gas per year to be used in its refining operations.To protect against large and unforeseen fluctuations, the Company can hedge forward up to 80% of its estimated usage over the next 24 months, and lower percentages of its estimated usage on a longer term basis.The Company will hedge close to its maximum level allowed if natural gas prices are below a certain percentage of the prior year’s average price and therefore lock in year-over-year savings. 

These gas hedges are unwound in the months that the commodity is used in the operations, at which time any gains or losses incurred are then recognized for the determination of adjusted gross margins and earnings. 

## Variation Margins (Margin Calls) 

For all hedged sugar and natural gas positions on the futures market, the Company must settle with the commodity broker on the following day any gains or losses incurred on the net hedged position of these commodities, based on the trading values at closing of the day.These daily requirements are called “margin calls.” 

When sugar prices are on the rise, the Company’s sugar suppliers will normally price in advance large quantities of sugar to benefit from these higher prices. On the other hand, the Company’s customers will only price forward small quantities, hoping for a downward correction in the marketplace.This will result in the Company having a “short” paper position.As the price of sugar continues to rise, the Company has to pay margin calls on a regular basis.These margin calls are paid back to the Company when the price of sugar declines or upon receipt or delivery of sugar. 

