Johannesburg - The JSE's trade in commodity derivative contracts in 2010 was up 12% on the previous year, the JSE's head of commodity derivatives Rod Gravelet-Blondin said on Tuesday.
“There is far greater understanding among farmers and millers of the uses of agricultural commodity derivatives as a tool to reduce price risk,” he said.
According to Moneyweek.com: "Derivatives are essentially a bet on which way the price of an underlying investment will go, which means that you can make money on them whether the market goes up or down."
It says trading in derivatives first started to protect farmers from the risk of the value of their crop going below the cost price of their produce.
Gravelet-Blondin said white maize accounted for 46% of all grains traded on the Commodity Derivatives market, a division of the JSE.
Wheat accounted for 27% and yellow maize 16%.
“Because we are a physical delivery market, farmers can lock in prices at the start of a growing season by taking out agricultural commodity derivatives, so that no matter what happens in the course of the year, they will be able to get their Safex price provided they deliver grain to the quantity and quality specified,” he said.
The SA Futures Exchange (Safex) was launched in 1995 to provide agricultural commodity derivatives trading to alleviate risk, after the government abandoned price controls and passed the risk on to farmers.
South Africa had a near record maize crop of over 12 million tons in 2010, helped by relatively strong prices at the start of the growing season, above average rainfall and better farming practices, Gravelet-Blondin said.
Prices had since dropped by about 30% from a year ago, with white maize for delivery in July 2011 now trading at about R1400 a ton.
Yellow maize, traditionally used as animal feed and historically trading at a discount to white maize, was now trading at a R80 premium to white maize, he said.
“This is because there was a large carry-over of white maize from the previous season, and export demand for South African maize is less buoyant due to improved yields coming out of countries like Zambia,” said Gravelet-Blondin.
“Another factor contributing to the increase in size of the maize crop is the fact that we are now seeing yields of close to five tons per hectare, which is virtually double what we were seeing 10 or 15 years ago.
"This is due in part to biotechnology, but also to improved farming practices. South African commercial farmers are far more business-minded and professional than was the case 20 or 30 years ago.”
The JSE's Commodity Derivatives market offers grain trading in white and yellow maize, soya, sorghum, wheat and sunflower seed. Metals traded include gold, platinum, silver and copper.