Area differential of Wheat

Grain SA has with dismay taken note of the planned raise in the area differential that was announced by the JSE yesterday. The proposed average differential can for instance increase with 36,9% for the Western Cape from R420/ton to R575/ton. The average increase on national level for the Randfontein wheat contract amounts to 25,85% and for the Paarl contract with delivering points (only in the Western Cape) 18, 45%.

Information shared with Grain SA by transport contractors, indicates that diesel constitutes approximately 50% of the cost of transport. Transport contractors that have been consulted, mentioned that wheat can currently be delivered to the Rand area at a transport cost lower than R575/ton. The price of diesel has, in the past year, increased by 21,7%. Traditionally, the transport cost of wheat is much lower when transported by rail over longer distances. It is also unusual that the rail transport cost component seems to be more than that of wheat transported by road. The implication of a higher area differential means that producers will be offered even less for their product because of the direct impact by the area differential on pre-season contract prices for the new season. It therefore remains difficult to accept that wheat producers’ income should to a great extent, be determined by derived prices on the term exchange system where wheat in the minority of the country and that of the Western Cape is delivered physically. The area differential therefore limits healthy competition in the cash market and smothers further development thereof.

At a yield of 3 tons per hectare the area differential of ±R1725 per hectare compares with the largest single cost components for a wheat farmer in the Western Cape as follows: fertiliser @ R1880 per hectare, diesel @ ±R570 per hectare and seed @ ±R440 per hectare. Grain SA’s official point of view is that the area differential should be disposed of. We again appeal to the JSE to bring an end to this matter that is a thorn in the side of grain producers. Comments on the suggested area differential must reach the JSE by next Thursday, 29 August and producers are also welcome to send their inputs to wessel@grainsa.co.za.