In addition to Zambian grain contracts, the JSE is expanding its commodity derivatives product range to include merino wool contracts, lamb carcass products and a feeder calf contract


Over the past couple of years, the JSE has been successfully building up a portfolio of products in the agricultural space, from maize and soya beans to livestock. ‘We are focusing on a wide subsector of industry, from Zambian clients to players in the wool and livestock sectors. It’s a whole new client base for us. We’re in a very good space in terms of the base and are excited about taking things to the next level,’ says Chris Sturgess, JSE Director of Commodities.

Most recently, the exchange has entered into an agreement with Cape Wool SA to introduce a cash-settled merino wool futures contract. The JSE will be working on an index with Cape Wool SA, which facilitates weekly wool auctions in Port Elizabeth and has a network of traders, brokers, farmers and international buyers. The contract is expected to be up and running in early June.

‘We look forward to rolling out this new product and working closely with the wool industry to build a liquid and dynamic wool price risk management platform,’ says Sturgess. The JSE will be doing plenty of hands-on training to ensure participants are up to speed in terms of how to manage price risk.

‘We’ll be doing a big education drive. We will work with member firms and educate interested clients on how to trade futures contracts. This includes explaining the difference between hedging and speculating,’ says Sturgess.

The JSE has also made a move into contracts for beef carcasses. This will soon be followed with lamb carcass and feeder calf contracts. ‘In the same way beef abattoirs want to forward sell their carcasses, someone in the lamb industry can say “I’m happy to fix a lamb price three months from now” that will give price stability,’ he says. As lamb prices are known to be particularly volatile, the JSE is hoping for traction in this product from a cross-section of participants in the lamb carcass sector.

Sturgess considers the exchange’s foray into new products very rewarding. ‘It’s encouraging that many of the market players – such as the wool, beef and lamb players – have approached us. It’s great that we can give them an opportunity, obviously bearing in mind that it takes time to confirm the product design and ensure all the necessary compliance approvals to offer these innovations.’ The JSE has found somewhat of a home in the grains market. ‘It’s where we found and settled ourselves in terms of liquidity, but we appreciate we cannot stop there.’

Commodities in this sector have seen a slower start than anticipated this year with lower volumes traded but some good summer rain in many parts of SA have prompted hope for better trading months ahead. ‘The stats are 25% down year-on-year for commodity contracts trades. With significant reduction in the maize crop in 2016, there was less trading activity. We expected a slight downturn but didn’t expect the drought to be as bad. From doing 14 200 contracts a day, we dropped to 10 700 a day.’

Sturgess adds, however, that crop estimates were forecasting more than 14.3 million tons of white and yellow maize combined, which is double that harvested in the past year. Maize, sunflower and soya bean products are the main stable products that have kept the markets busy.

The JSE has been working with the wheat industry in changing the wheat derivatives contract specifications. The JSE will introduce the guaranteed grade wheat facility, in which storage operators will – at their discretion – issue JSE silo receipts for specific grade wheat. They will honour these for a period of three months for trading purposes and a further month to outload. This will be valid for the marketing season from 1 October 2017 to 30 September 2018. The JSE will also publish final grade discounts closer to the marketing season using a new methodology that hopefully reflects closer to international trends.

Another very exciting move for the JSE has been working on Zambian white maize, wheat and soya bean contracts. Zambian grain products listed on the JSE will enable farmers and millers to better manage price risk using futures and options contracts.

The JSE is currently in the final stage of implementing the Zambian contracts. ‘We now have clients opening up US dollar bank accounts to use as settlement for the Zambian contracts. It’s coming together very nicely and we’re looking forward to those first trades. It will bring Zambia and South Africa closer together and be an opportunity for improved regional trade. I’m really honoured the JSE can play a small role in this regard.’ Sturgess considers it a very big opportunity for the JSE. ‘It’s the first foreign-denominated product that we will be able to roll out,’ he says. ‘We’ll be able to prove that our systems can facilitate trade in foreign currencies.’

The exchange’s pioneering work on derivatives has set the scene for some promising times ahead. ‘We have tackled a quantum of new products,’ says Sturgess. ‘Now it’s about bedding these new products down and giving our very best educational drive to players to take things forward.’

By Kim Cloete
Image: GalloImages/Alamy/Dmitry Gool