22 Feb 2019
Although the sorghum futures contract has been listed on SAFEX for a few years, it has not really served the purpose as a price risk hedging mechanism. This is mainly as a result of insufficient participation in the contract and therefore not enough liquidity.
A futures contract also plays a very important role in the transparent pricing of the crop, and it is therefore imperative that there is as much participation as possible in the contracts to reflect a transparent price.
The contract was initially listed as 100 tons, but given the current situation of the local sorghum industry, with the decrease in production and consumption over the past few years, members of Grain SA’s sorghum specialist working group considered the 100-ton contract as too large.
Grain SA proposed to industry and the JSE's advisory committee to reduce the contract size, with the anticipation that it would stimulate trading on SAFEX. Higher participation and sufficient liquidity in this future contracts would be positive for the sorghum industry as a whole as this will bring more price transparency to the market. This will also provide a platform for all the market participants to do successful price risk hedging.
The revised sorghum contract that trades on SAFEX is now 30 ton instead of the initial 100 ton contract. The new contract specification can be obtained from the links below.
JSE Market Notice 3619 CDM - Revised Contract Size for Sorghum
JSE Market Notice 4219 CDM - Revised Sorghum Contracts Specifications and Margin Requirements