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investigated by expert from USA
GRAIN SA
D
uring recent discussions between Grain SA and the JSE
the decision was made to address the ongoing concerns
regarding the effectiveness of the current location differen-
tial system. The JSE therefore contracted an independent
expert, Prof Matthew Roberts, from the Department of Agricultural,
Environment and Development Economics at the Ohio State Univer-
sity, to investigate the current location differential system.
In 2008, the National Agricultural Marketing Council (NAMC) re-
leased its findings with regards to the operation of the Agricul-
tural Products Division of the Johannesburg Stock Exchange. This
study was undertaken at the request of Grain SA. One of the issues
examined was the location differential system implemented by the
JSE in settling the white and yellow maize and wheat futures con-
tracts. The report recommended that Safex should maintain the cur-
rent differential system and continue to calculate the differential in
the current manner.
Prof Roberts already has knowledge of the South African market
and conducted a previous study on behalf of the NAMC in 2009. The
JSE therefore decided that Prof Roberts should once again evaluate
the market and provide the JSE with new recommendations.
In the previous study Prof Roberts made a few observations which
include the following:
Randfontein was chosen as the reference point as it has a con-
centration of milling capacity.
The differential is an estimate of the transportation cost from
the delivery silo to Randfontein.
Millers/buyers cannot share prices paid at various locations as
this will expose their needs for physical grain to their competi-
tors.
Futures markets exist to ensure the cash commodity markets,
and the overall economy, operate more efficiently.
Futures prices would reflect worst case delivery scenarios.
If the location differential is removed, the catchment, or area
from which the Safex physical delivery will draw grain, will be-
come much smaller, centered at these worst-case scenarios.
The level at which producers can guarantee a market for their
production will fall, which will limit their ability to obtain input
finance.
The recommendations from the 2009 study were as follows:
Retain the differential system as it was at that stage.
Look at ways in which information and access to information
in the market could be improved.
Introduce a Commitment of Traders’ report by the JSE.
Safex should explore the introduction of an electronic exchange
for silo certificates.
Grain SA obtained various data and facts over the past few years,
and will present this to Prof Roberts according to the mandates
of the 2018 Grain SA Congress.
MARIËTTA CRONJÉ,
SA Graan/Grain
contributor
Biography of Prof Matthew Roberts
Prof Roberts’ research interests relate to his experience in the commodity markets. He also published articles on technical analysis and
the use of derivatives to manage risk in agricultural production. His extension and outreach activities focus on biofuel markets and the
grain market situation and outlook. He has given testimony before the Ohio House Alternative Energy Committee, and assisted state
and federal lawmakers on agricultural and energy issues. Prof Roberts has been quoted in the Wall Street Journal, the Chicago Tribune,
Associated Press, and Forbes, and has been interviewed on CNBC. He is also an active consultant to the commodity industry and nationally
renowned speaker, speaking approximately 50 times per year across the USA on grain, petroleum and biofuel markets and policy.