Agris & Commodities


What is the Role of Agricultural Derivatives? 

Agricultural derivatives play an active role in price determination and transparency in the local agricultural market whilst providing an efficient price risk management facility.

Producers and users of agricultural commodities hedge their price risk, thereby limiting their exposure to adverse price movements. This encourages increased productivity in the agricultural sector as farmers and users are able to concentrate their efforts on managing production risks. There are risks associated with variables such as the weather, farm/production management and seasonal conditions.

The futures market exists solely for the purpose of allowing commercial users to hedge their transactions to lock in favourable prices. Yet, the market could not operate efficiently and effectively without speculators, as they provide the necessary market liquidity.  Speculators use futures and options in an attempt to make profits on short-term price movements.

The agricultural derivatives market has developed to such an extent that the cash market now largely relies on its price transparency and discovery process to function properly. Prices generated on the derivatives market are now considered the industry standard and reference point throughout Southern Africa.


Why Trade Agricultural Derivatives on an Exchange 

Regulation – Safex APD is a division of the JSE managed by the JSE and regulated by the Financial Services Board (FSB) which oversees the exchange’s reporting with regards to the Security Services Act of 2004 (SSA) which replaced the Financial Markets Control Act of 1989 and the Stock Exchange Control Act of 1985.

Margins - When trading derivative products, the exchange requires the payment of both initial margins and variation margins. The initial margins are determined by the clearing house and vary depending on historical price volatility. The variation margin is a daily flow of funds (profits/losses) resulting from any open position calculated through a methodology of Mark-to-Market (M-t-M).

Financial Integrity – When dealing with the exchange the exchange’s clearing house becomes seller to every buyer and buyer to every seller. Members are free to deal with each other without any credit risk. This eliminates counter party risk.

Transparency – Pricing is determined purely on the basis of demand and supply. Prices for each contract are negotiated between buyers and sellers via an electronic order matching platform called Nutron. The presence of numerous buyers and sellers ensures that prices are always competitive and adjust efficiently to reflect changes in the underlying market.


How are Agricultural Derivatives Traded? 

Registered agricultural derivative brokers input orders into Nutron from remote locations during trading hours (09h00 – 12h00) which are automatically matched on the basis of time and price priority. The exchange guarantees performance by counterparties in a futures contract.

Agricultural derivative prices are quoted at their Rand value per ton, delivered on truck alongside silo basis Randfontein. One futures contract comprises 100 tons for white and yellow maize and 50 tons for wheat and sunflower seeds. Soybean contracts are quoted at their Rand value per ton, and comprise 25 tons per contract. The soybean contract trades at the same basis price in a number of registered silos with no location differentials.

Daily price limits, limiting the daily movement of prices, add security to the market. If the limit is reached on two like contracts on two consecutive days the price limits are increased to 150% of the original limit and the extended limits will remain in place until the daily movement on all like contracts is less then the original limits. Extended price limits also result in increased initial margin requirements for those periods when the extended limits apply.


How are Agricultural Derivatives Traded? 

Registered agricultural derivative brokers input orders into Nutron from remote locations during trading hours (09h00 – 12h00) which are automatically matched on the basis of time and price priority. The exchange guarantees performance by counterparties in a futures contract.

Agricultural derivative prices are quoted at their Rand value per ton, delivered on truck alongside silo basis Randfontein. One futures contract comprises 100 tons for white and yellow maize and 50 tons for wheat and sunflower seeds. Soybean contracts are quoted at their Rand value per ton, and comprise 25 tons per contract. The soybean contract trades at the same basis price in a number of registered silos with no location differentials.

Daily price limits, limiting the daily movement of prices, add security to the market. If the limit is reached on two like contracts on two consecutive days the price limits are increased to 150% of the original limit and the extended limits will remain in place until the daily movement on all like contracts is less then the original limits. Extended price limits also result in increased initial margin requirements for those periods when the extended limits apply.


Settlement Procedures of Agricultural Derivatives & Physical Delivery 

All products traded on the agricultural derivatives market can be physically delivered at expiry in fulfilment of a futures contract. This does not mean that 100 tons of maize is delivered by truck to the exchange to complete the delivery process. The exchange makes use of a silo receipt, a transferable but not negotiable document, representing a specific quantity of stock in a registered Safex silo to effect delivery. Paper and electronic silo receipts issued by registered silo owners is accepted by the exchange. The silo owner storing the product guarantees the quality of stock as per detailed grading methodology specified by the National Department of Agriculture and to outload the specific product upon presentation of the silo receipt. Delivery can take place any business day on a particular delivery month. (A futures position in the July contract can only be delivered on during July). Physical delivery takes place over a two-business day period, the notice day followed by the delivery day (the next business day). Delivery can take place at any Safex approved silo and each delivery point is subject to a location differential (based on transport costs). Location differentials are determined by the exchange and are available on the Safex website.


Commodity Derivatives Products 

The JSE's SAFEX Commodity Derivatives Market provides you easy access to both physically settled grain products as well as a number of international commodities that are traded and cash settled in ZAR.

Contact Us


SA Stock Brokers

Suite 201, 2nd Floor
The Firs
Cnr Bierman & Cradock Avenues
Rosebank
Johannesburg
2196

Administrative Queries


Marketing & Information


General Queries


Name*:
 
Email Address*:
 
Subject*:
 
Comments*: