Premiums paid on JSE grain trades reach R10 million

November 20, 2013

Johannesburg, 19 November 2013. In the JSE’s commodity derivatives market, a spot basis trading platform introduced just over a year ago has seen farmers and clients selling grain earn a premium of R10 million over the past year.

“I am really pleased to reach R10 million. This is only the beginning and we must work harder to ensure producers are aware of the premiums available and understand how to access the system. The platform will become more efficient if we have increased participation,” says Chris Sturgess, Director of Commodity Derivatives at the JSE.

The basis trading system allows buyers to offer sellers a premium over and above the currently traded JSE nearby price of grain in order to receive it from their preferred delivery point. The system also allows sellers to take their wheat, white or yellow maize, soya beans or sunflower seeds to a wider market to gain a premium based on where they deliver their product. The value of grain varies from delivery point to delivery point based on supply and demand and farmers can therefore negotiatea higher price for their grain where demand is greater.

The basis premium system also makes it easier to know what buyers are really willing to pay for grain at each delivery point. This gives farmers greater bargaining power because they have access to more information. These premiums are paid over and above the JSE price after the location differential is subtracted from it.

Sturgess says the market has seen premiums of R700 per ton on trades for yellow maize in the Western Cape. Drought conditions in the North West also impacted supply and delivery points like Mareetsane and Kameel have commanded higher priceswith premiums of between R230 and R250 per ton reached.

The JSE is also focusing on expanding the premium trading system to allow market participants the opportunity to manage their basis risk by introducing a basis futures contract on certain delivery points. This will allow a seller to lock in a basis premium in advance and in the same way allow a buyer to secure a preferred delivery point at a premium.

He goes on the say, “All this new functionality does not help if you don’t understand how the derivative market works and so it is critical participants educate themselves on how and why the derivative market exists.” He adds that the JSE recently introduced a virtual trading platform on its web page to further assist participants with this learning process.

The total numberof grain futures and option contracts traded on the JSE’s Commodity Derivatives Market amounted to approximately 2.8 million in the past year. The standardisation of futures contracts and trading of a single reference point, namely Randfontein and Paarl for the Cape wheat contract, are critical to ensuring a liquid commodity derivatives market.

Standard contracts connect buyers and sellers who may be from different parts of the country but have a common objective and that is to manage their price risk. Many of the contracts listed allow for physical delivery on completion of a futures contract and included in this process is the ability to deliver in any of over 200 registered delivery points. Since sellers have a choice where they want to deliver, a published location differential is then applied to the final settlement price.

For more information about the virtual trading platform visit:  

About JSE Limited
As South Africa’s only full service securities exchange, the JSE connects buyers and sellers in five different financial markets, namely equities, equity derivatives, commodity derivatives, currency derivatives and interest rate products. The JSE Ltd offers the investor a truly first world trading environment, with world class technology, surveillance and settlement in an emerging market context. It is amongst the top 20 largest equities exchanges in terms of market capitalisation in the world. In terms of derivatives, the JSE is currently ranked the 20th largest exchange by the Futures Industry Association (FIA).
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Victoria Williams / Mari Blumenthal
H+K Strategies South Africa
Tel: +27 11 463 2198
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Chris Sturgess
Director: Commodity Derivatives