ManageMent’s Discussion anD analysis 11 Annual Report 2013 The Company mitigates the impact of the above by reviewing on a daily basis the total hedged position to determine that,  in total, all sugar transactions are hedged. The Company also prepares a hedged transaction report by terminal periods  to determine that there is no straddle within each terminal period. In the event that a straddle position exists due to  circumstances discussed above, the Company will immediately correct the straddle and record any gain or loss incurred in  correcting the straddled position. In addition, if a customer is late in taking delivery of its “priced” sugar, and if the Company  needs to roll forward the un-drawn quantity to the following terminal period, the Company can invoice the customer for all  costs incurred in rolling forward the un-drawn volume.  Inefficiencies could occur and small gains or losses could be incurred on hedged transactions. Every year, the Company  estimates sales patterns against the receipt of sugar deliveries. Any discrepancies in these estimates may result in small gains  or losses on hedged transactions. A customer may be taking more or less sugar than determined under its contract, for  example, and small gains or losses may be incurred on the hedged transactions as a result.  On the futures side (paper transaction), the Company will liquidate its entire position prior to March 1, 2014. For the  above transactions, the Company sold a future position of 1,000 metric tonnes for U.S.19.00 cents per pound and bought a  future position of 1,000 metric tonnes for U.S.18.00 cents per pound. On the liquidation date, the March terminal trades  at U.S.22.00 cents per pound. Therefore the Company will buy back the U.S.19.00 cents (original sell position) for  U.S.22.00 cents, losing U.S.3.00 cents per pound. On the other hand, the Company will sell the original buy position  of U.S.18.00 cents for U.S.22.00 cents, making U.S.4.00 cents per pound on this transaction. In total, the Company will  make U.S.1.00 cent per pound or U.S.$22.05 per metric tonne for a total, on 1,000 metric tonnes, of U.S.$22,050 on  the liquidation of the futures transaction.The loss incurred on the physical transaction is therefore totally offset by the gain  earned on the liquidation of the futures position, due to the hedging of the transaction.  On the physical transaction, the Company sold 1,000 metric tonnes of sugar at U.S.18.00 cents per pound (before refining  margin), bought from the Seller at U.S.19.00 cents per pound. In effect, the Company, on the physical transaction, would  incur a loss of U.S.1.00 cent per pound or U.S.$22.05 per metric tonne for 1,000 metric tonnes, for a total loss of  U.S.$22,050.  From the above example, we will now demonstrate how the Company protects itself against fluctuations in the market.  The Company sold 1,000 metric tonnes to customer “A” for January of 2014, which had been priced at U.S.18.00 cents  per pound or U.S.$396.83 per metric tonne.The Company also purchased 1,000 metric tonnes of sugar, which had been  priced at U.S.19.00 cents per pound or U.S.$418.87 per metric tonne. Both of these transactions were hedged against the March 2014 terminal. Upon receipt and delivery of the sugar, these transactions would be recorded at their cost.  As an example, customer “A” negotiates a contract with Lantic from July of 2013 to June of 2014, for delivery of  1,000 metric tonnes of sugar per month, for a total of 12,000 metric tonnes. In August 2013, customer “A” decides to firm  the price of the sugar to be delivered in January 2014 (against the March terminal).That day in August, the price of sugar  for the March 2014 terminal is U.S.18.00 cents per pound or U.S.$396.83 per metric tonne. As customer “A” prices this  sugar with the Lantic trading desk, Lantic will, at the same time, buy a futures position for the same volume and price on the  futures market (ICE) to hedge Lantic and protect the Company from any fluctuations in the sugar market. 