Producers of corn sweeteners are enforcing some of their strong contract price increases in years, after capacity cutbacks gave them the "whip hand" in negotiations with buyers such as soft drinks groups.
Many buyers of corn sweeteners such as high fructose corn syrup (HFCS), who in a typical year do not even start negotiations with sweetener manufacturers until October, have already signed off on 2016 supply contracts, Credit Suisse said.
"It is unusual to hear that contracting is bedding down rather earlier," the bank said.
And the deals sealed appear to have been at prices up by about $3 per hundredweight year on year – below the $3.50-4.50 increases that producers were demanding, but a 15% increase nonetheless.
"Annual US sweetener negotiations look to have been completed earlier than usual and at some very favourable prices," Credit Suisse said.
The comments follow an observation from US broker Jefferies last month that annual negotiations on HFCS had "started early and robustly", and might end up showing strong price increases for buyers, which include the likes of Coca-Cola and PepsiCo.
"When the cycle turns, it can do so quickly and dramatically," Jefferies said.
While consumption for HFCS in the key North American market is in fact flat, with a 14% rise in exports to Mexico in the first half of the year offsetting a decline in US demand, producers have improved their negotiating power by cutting capacity.
Cargill late last year closed a site in Memphis, Tennessee, taking some 7% of North American supply out of the market, while a further 2% is going with the sale by Ingredion of a Canadian plant to Jungbunzlauer, which is to use for its citric acid operations, rather than for making sweeteners.
"This process of tightening supply has seen capacity utilisation in the industry head over 90% on our estimates – firmly giving the whip hand in any negotiations to the sellers," Credit Suisse said.
Even at higher prices, HFCS remains a cheaper option for buyers than sugar, values of which have recovered notably from August lows.
The improvement was driving tolling rates – the profitability that manufacturers make on HFCS above the cost of corn – to its highest rates since at least 1991, on Credit Suisse estimates.
This was a positive for profitability hopes for the likes of Tate & Lyle, which relies on US sweeteners for more than one-third of operating profits.
The bank raised by 5p, to 39.6p, its forecast for Tate & Lyle earnings per share next year, and lifted by 90p to 600p its target price for the shares.
Nonetheless, with this target price only modestly above the current share price, Credit Suisse kept a "neutral" rating on the stock.
The shares stood 1.8% higher at 580p in lunchtime deals in London.
By Mike Verdin