JOHANNESBURG – The JSE (www.jse.co.za) says it will introduce its third wheat futures contract, with a cash-settled contract based on hard red winter wheat, referencing the Kansas City Board of Trade’s (www.kcbt.com) benchmark settlement prices. The new contract will be introduced on 28 March with expiry dates in July, September, and December 2012 and March 2013.
KCBT President & CEO Jeff Borchardt said: “The Kansas City Board of Trade is proud to be partnering with the Johannesburg Stock Exchange to provide their market users access to our Hard Red Winter wheat futures contract, the global benchmark for bread wheat pricing. JSE’s respected position in global commodities trade made the idea of working with JSE quite appealing. This is KCBT’s first such license agreement with an overseas exchange.”
Chris Sturgess, Director: Commodities at the JSE, commented: “We are very pleased to be working with the Kansas City Board of Trade, which celebrates its 156th anniversary this year. Not only do they have a wealth of experience, we also share their commitment to integrity and service for the market we serve. This also represents a further step toward globalizing South Africa’s commodity markets.” Hard red winter wheat is similar in type and milling quality to South African-produced wheat, which means local market participants can consider this alternative product for price-risk management purposes specific to their wheat exposure.
This is the JSE’s third wheat futures contract and the second international wheat contract, all traded on contract sizes of 50 metric tons. The JSE’s local wheat contract is its second most liquid agricultural product. The JSE listed its first international wheat contract under license from the CME Group in July 2011.
According to Sturgess: “Offering 3 wheat contracts enables traders not only the choice on which product to hedge their wheat-price risk but also through our electronic trading system the functionality to trade the spread between the various markets. This should complement volumes across all 3 product types.”
South African local traders have had access to global commodity markets since 2009, when the JSE signed the first licensing agreement with the CME Group for a corn futures contract. It currently offers contracts on corn, wheat, soybean, soybean meal and oil.
As with other foreign-referenced commodities, Rand Merchant Bank and Nedbank Capital will be market-makers, ensuring active price quoting off the liquidity of the international market. Individual investors and corporate entities are able to invest with no limits. Pension fund managers and long-term insurance funds are subject to their 25% foreign allocation limits. And asset managers and collective investment schemes will be subject to their 35% foreign allocation limits.
Why invest in or trade wheat futures?
Wheat futures provide a way for South Africans to:
- Effectively manage the price risk with a view either on the domestic market or to more easily access the international market via the contract, which will be traded in the local currency
- Hedge or gain exposure based on expectations of directional price, spread movement or volatility in wheat either as an outright position or versus the domestic market
- Realise arbitrage and spread opportunities between the CBOT contract, KCBT contract and the local contract
- More effectively evaluate both the current and future world supply and demand for wheat and the various qualities
- Identify short- and long-term cyclical price and volatility patterns for wheat.
Full product specs can be found at: www.jse.co.za/commodities. The JSE is among the world’s top 20 largest equities exchanges in terms of market capitalisation. It is currently ranked the 20th largest exchange by the Futures Industry Association (FIA) for derivatives