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.
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.
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
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).
information, please visit www.jse.co.za
Victoria Williams / Mari Blumenthal
H+K Strategies South Africa
Tel: +27 11 463 2198
Cell: +27 72 452
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