The JSE launched a new agricultural derivatives trading platform on 20 October. According to Chris Sturgess, assistant general manager for the agricultural products division of the JSE, the new technology will encompass more efficient systems and additional functionality for brokers trading in agricultural derivatives.
These derivatives can either be futures contracts or option contracts. Futures are an agreement to buy or sell goods, currency or securities on an agreed future date and for a price fixed in advance. An option is an instrument that gives the owner the right, but not the obligation, to buy or sell at a set price for a particular period of time. Producers and users of agricultural commodities can limit their exposure to adverse price movements resulting from changing weather patterns, currency fluctuations and product shortages by hedging their price risk and locking in a favourable price. This can increase productivity as farmers and users are able to concentrate on managing production risks. “When a grain producer wants to start planting, he can look at the current market price and enter into a futures or option contract to lock in a commitment to sell his produce at a fixed price nine months down the line,” explained Sturgess.
Several big producers trade by themselves on the agricultural derivatives market, while banks usually trade on behalf of the smaller farmers, according to Sturgess. e said, however, that the new trading platform will have no impact on most farmers in South Africa, but it will allow for increased automation, especially in the delivery process on completion of a futures contracts. – Drieka Burger