Johannesburg Stock Exchange to introduce CBOT Soya Bean Commodity Derivatives

Johannesburg Stock Exchange to introduce CBOT Soya Bean Commodity Derivatives


The JSE is to introduce cash-settled soybean, soymeal and soybean oil derivative contracts based on CBOT settlement prices licensed from CME Group, the world’s largest and most diverse derivatives marketplace. The new products will allow local farmers, processors and importers to hedge their price risk against the international benchmarks. These contracts will be listed, traded and settled by the JSE, starting Monday 17 May 2010.

The JSE’s cash-settled soya contracts will give local market participants a tool to access international prices, adding a wider choice of hedging options according to their risk-management needs. The JSE currently trades a physically settled 25 ton soya bean contract which serves the local market. By adding the cash settled soybean products, local producers especially will have the flexibility to either hedge on the physically settled local market (based on local fundamentals) or the cash settled global market (based on international fundamentals).

The three new standardised soya derivative contracts to be traded on the JSE will represent 100 metric tons for soybeans and soymeal and 25 tons for soybean oil. The new contracts will allow feed manufacturers, importers and the local oilseed crushing community the opportunity to use one or all three of the new products in their price risk management strategies.

The soybean is a rich source of protein which yields meal and oil in the crushing process. Soybean meal is a low-cost, high-protein animal feed that is widely used in South Africa. Last year South Africa imported approximately 1 million tons of meal. “While we do produce soya locally, we import a significant amount of meal to satisfy local animal protein requirements exposing importers and downstream market participants to international price fluctuations. Having a product based on a US soya market, the world’s largest producer and exporter of soybeans, will give local market participants a tool to hedge against this price risk,” comments Rod Gravelet-Blondin, Senior General Manager of Commodities at the JSE.

Soybean oil is a common ingredient in food manufacturing and is often used as a cheaper substitute for sunflower oil. “Even minor price fluctuations of raw ingredients have a major impact on food production costs. We are confident that this derivative will also be used by the manufacturing sector as a hedging tool to ensure better price planning,” says Gravelet-Blondin.

The United States produces more than a third of the world’s soybean crop, followed by Brazil and Argentina. Global demand for soya continues to grow largely attributable to the rapid growth and development of Asian economies.

“The fruitful relationship between JSE and CME Group continues to grow with the introduction of three new soybean contracts based on CBOT’s global benchmark prices,” said Bryan Durkin, Chief Operating Officer and Managing Director of Products and Services at CME Group. “With food prices an ever-present challenge for both emerging and established economies, these new contracts underline our commitment to working with our strategic partners worldwide to develop effective risk-management tools.”

The launch of the new commodities is part of the JSE’s continued drive to increase its product range in line with market demand. The JSE's commodity derivatives market reinvented itself in 2009. Previously exclusively an agricultural market, last year the division broadened its focus to include precious metals and energy products. This process was initiated by the launch of a corn futures contract in 2009, based on CBOT prices under license from CME Group. Gold, platinum and crude oil derivative contracts followed, also based on CME Group’s global benchmark prices.