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Perspektief | Perspective Week 25 - 2017

23 Jun 2017

MARKET TRANSPARENCY AND INFORMATION

Ongoing actions

A free market system only functions on the availability of sufficient information for all role players in the market. That is the reason for the founding of SAGIS to provide the platform for information that is objective and not biased. Grains SA views the constant supply of information to the market as extremely important.

Updated daily, the Grain SA website is the first and most important source of market information, with the daily market report providing an overview of what is happening in both the international and local markets. Input price trends are also monitored monthly locally and internationally to ensure transparency. In addition, Grain SA's magazine SA Graan/Grain also provide important monthly production and market information.

This year, Grain SA also developed an APP (app.grainsa.co.za) enabling producers to share information at regional and national level. This platform allows each producer to monitor and compare production progress, harvest conditions and harvest progress. Furthermore, the APP can compare input costs on a similar basis. The information, of course, depends on active participation of all producers. This feature is only available to Grain SA members, providing the benefit of access to superior marketing information in order to make informed decisions.

Current actions and processes

Import and export contract reporting

Only transactions that have already been imported and exported are currently being reported by SAGIS. As a result, the market cannot respond to future transactions and as the market is highly concentrated it causes volatility.

Grain SA has in 2012 applied for import and export contracting information and the National Agricultural Marketing Council (NAMC) as well as industry decided to publish the information on a voluntary basis rather than statutory. The information is mainly located within the NAMC's Supply and Demand Committee. Although the role players provided the information, the information still did not give the market opportunity to respond timeously. An additional concern was that not all role players provided information.

An application was again submitted in 2015 and was rejected by the Supply and Demand Committee early in 2016 due to the concern that traders can pass incorrect information which could result in unintended consequences. This could be seen by the market as market manipulation.

Grain SA subsequently requested the maize forum to establish a working group in order to investigate reporting possibilities and to produce methodological suggestions, with Grain SA acting as functionary. The working group conducted various research and communicated with international role players such as the USDA. The proposal emanating from the working group included that the information should not lie within the Supply and Demand Committee, but rather within SAGIS. Further suggestions were made in order to ensure transparency and possible implementation solutions were also discussed with SAGIS. Certain of the role players in the industry chose not to be part of the process and Grain SA was required to submit an application on an individual basis and not through the Maize Forum due to the lack of consensus. Grain SA has received support from various role players, including the National Chamber of Milling, individual traders, the JSE and various agri-businesses.

The NAMC has received the application and sent it for comment, with only one party opposing the application. According to the Agricultural Marketing Act, a majority of consensus must be reached for any statutory measure, in order to present any recommendation to the Minister. The party who opposes the application has involvement within the trading-side and therefore the application was returned to Grain SA with the recommendation to reach consensus. Grain SA is currently in talks with the party for the purpose of reaching consensus. The Winter Grain Trust has in the interim indicated that they do not currently have a budget to support the development of the information system. Grain SA is willing to carry the costs if this proves the only stumbling block, as we still believe that the whole industry can benefit from the information and that the market will be more transparent. In addition, the acting CEO of the NAMC was fully informed in a closed meeting regarding the consequences to food security if the decision did not materialise.

Grain SA and other parties have requested the Maize Forum to present an export information day for the relevant government departments and industry. This will assist to establish actions to ensure that exports are carried out comfortably from a logistics, regulatory and market perspective. The application of the import and export information was also discussed on the day.

The traders agreed in principle to disclose import and export information from contract closure until it was actually imported or exported. The details and frequency are currently being negotiated. The GSA leadership has decided that should traders refuse cooperation the process will be taken further, probably through the Competition Commission.

Commitment of Traders (Commitment of Traders)

This report gives an indication of role players' specific positions in the derivative market. As a result, assumptions can be made on how many speculators and fund managers have taken positions in the market. This will give both producers and the market an idea of what might happen with positions in the market, which makes better marketing decisions possible. The process, a long time in the making (> 3 years), has to date taken several forms. Unfortunately, the report was rejected at the JSE legal department in mid-June 2017 due to legal implications within the ambit of the Financial Act. Grain SA has submitted a request to the Maize Forum to approach the Financial Services Council (FSB) as industry to find possible legal solutions.

Consumption information

Currently, only monthly national consumption figures are published by SAGIS. Grain SA has applied through the Maize and Wheat Forums for reporting of provincial consumption figures. It will assist to have an overview of where most commodities are consumed within the country, and it can assist with basis provisions as well as better logistics management. It further helps to provide information in terms of determining a fair reference point. SAGIS has filed the application in September 2016 with the Competition Commission for approval. Although the Competition Commission has granted the request mid-June 2017, certain conditions have been set complicating the process somewhat, but at least there is progress. Grain SA is currently in discussions with both SAGIS and the Competition Commission.

Grain SA continuously focus efforts to obtain improved and more transparent information for our members in order to make better marketing decisions and be more profitable. Thus, the entire industry is being lobbied to ensure future cooperation, to find workable solutions and to build relationships. In this way, a common vision for the grain industry is created and managed.


SACOTA: IMPORT AND EXPORT REPORTING

Grain SA and SACOTA leaders met on 14 June 2017 to discuss the statutory reporting of import and export contracting with the aim to find solutions. SACOTA has in principle approved the Grain SA request and wishes to cooperate, but it is important for them to ensure that the technical aspects are workable and realistic and do not cause confusion in the market. Grain SA has already had a follow-up meeting where questions to SACOTA were addressed regarding the methodology and activities of the proposed measure. The attitudes of both sides regarding the matter have been restored and Grain SA is confident that, with SACOTA's support, the measure will be approved by the Minister shortly.


WHEAT INDUSTRY MAKING GOOD PROGRESS

The turnaround strategy for wheat has made good progress over the past two months with the following feedback regarding the latest developments.

Guaranteed grade contracts

The guaranteed grade contracts have been approved and will be available on the JSE platform. The guaranteed grade contract will be valid for 3 months' trading and 1 month off.

Discount

The R100 degree discount on imported wheat falls away.

Price differences

The price differences in terms of grades have been adjusted. The JSE is going to follow the international method, resulting in a 20 US cent/spoon deduction for every 1% protein difference. The implication at an exchange rate of R13,40, is R99 which is close to 2%. This is a big step forward in terms of the turnaround strategy and in addition, the new methodology also supports our producers. The exchange rate which will come into effect will be determined as follows: 7 weeks on average before 15 September.

Wheat rate

Grain SA has commenced the legal process to enforce the wheat tariff. This follows after SARS has not announced the new trigger. On Thursday evening, 23 June 2017, SARS announced the new formula and therefore the rate is currently R946. The formula did not change much and it was clear that Grain SA's submissions made a good impact. Changes: Exchange rate effect negotiated; New base price calculated; and Base Price to be reviewed every 3 years. Due to international price increases, the fare may be adjusted downwards in the near future.

Grading

The next step is to review the rating criteria. Currently it is under negotiation and the Winter Grain working group has already forwarded proposals to the Wheat Forum.


REAL STORAGE COSTS

It is always difficult to make a decision regarding storage costs and the possibilities of utilising markets. The Grain SA economics team compiled a model to provide producers with quick answers for each one’s own scenario. The model calculates, given the storage costs and interest rates, at which price your costs will be covered. It furthermore gives the producer additional information to make a well-informed marketing decision.

Click here to link to the model

Producers are also reminded to complete their harvesting progress on the GSA App.


CONSERVATION AGRICULTURE FARMER'S DAY

The Conservation Agriculture Farmer’s Day is presented by the Ascent Study group, Grain SA and VKB and is taking place on 24 August in Vrede. The theme for 2017 is “The role of cover crops and livestock integration in Conservation agriculture and sustainable crop production in the Vrede-area”

Click here to view the programme and registration details