JOHANNESBURG, SOUTH AFRICA — The Johannesburg Stock Exchange (JSE) confirmed on March 19 its plans to introduce a new foreign-referenced wheat contract to its existing portfolio of international soft commodities. The cash-settled futures contract, based on hard red winter wheat, will reference the Kansas City Board of Trade's (KCBT) benchmark settlement prices.

For the JSE, the benefit of offering this contract is that 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.

"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," said Chris Sturgess, director, Commodities at the JSE.

"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, and we are pleased that it is with our friends at JSE," said KCBT President & Chief Executive Officer Jeff Borchardt.

The contract will be introduced for trading on March 28, with expiry dates in July, September, and December this year and then also March 2013. This is the second foreign-referenced wheat contract to be offered by the JSE, with the exchange listing the first international wheat contract under license from the CME Group in July 2011.

"As our local wheat contract is the JSE's second most liquid agricultural product and while volumes in our foreign-referenced contracts remain strong, this additional wheat contract should be well received by traders. Offering three 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 three product types," said Sturgess. With a contract size of 50 tonnes, the product mirrors the existing wheat contracts traded on the JSE.

While this is the first agreement signed with the KCBT, it is not the first time local investors will have access to international agricultural markets. 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. Today the exchange offers contracts on corn, wheat, soybean, soybean meal and oil.

Similar to the other foreign referenced commodities, market makers, namely Rand Merchant Bank and Nedbank Capital, will ensure 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.

Full product specs can be found at: www.jse.co/za/commodities

JSE said 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.
  • Realize 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.