The Johannesburg Stock Exchange (JSE) on Monday confirmed 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 globalising SA's commodity markets,” Chris Sturgess, director for commodities at the JSE says.
“The Kansas City Board of Trade is proud to be partnering with the JSE 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,” Jeff Borchardt, KCBT President & CEO said.
The contract will be introduced for trading on Wednesday 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 licence from the CME Group in July 2011.
Sturgess said that as their local wheat contract was the JSE's second most liquid agricultural product and while volumes in their foreign-referenced contracts remained strong, this additional wheat contract should be well received by traders.
Sturgess added that offering three wheat contracts enabled traders not only the choice on which product to hedge their wheat price risk, but also through their electronic trading system the functionality to trade the spread between the various markets.
With a contract size of 50 metric tons, 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. - I-Net Bridge