Johannesburg Stock Exchange launches Beef Futures
With a national count of 13 million cattle with about 2.2 million butchered annually the Johannesburg Stock Exchange (JSE) launched this week the Beef Futures as a commodity for chilled beef carcasses.
Following recent talks between Meatco and the JSE in South Africa on ongoing consultation with players in the beef industry, Manager of Commodity Derivatives (JSE) Raphael Karuaihe said that industry players like Meatco, as a major buyer of livestock and processor of beef can use the beef carcass contract listed on the JSE for price risk management purposes.
The beef instruments being proposed are derivative instruments given by the listing on the JSE. The launch of the Johannesburg Beef Futures contract could help reduce risk for the Namibian beef industry as the Namibian Stock Exchange (NSX) does not have a derivatives market, only an equities market.
The commodity will consist of two sides per carcass, graded as A2/A3 and having conformation of 2, 3, 4 or 5, a damage class of not more than 1 on either the buttock, loin or fore-quarter, and no measles, in terms of the national beef grading guidelines.
Namibia and South Africa have similarities in prices for A2 and A3 grade carcasses thereby making it favourable for meat processors to gain prices in their favour and managing their exposure to changing prices by listing beef contracts to help stakeholders manage their price risk.
Carcasses must comply with minimum dressing standards and must be fit for human consumption. For the purposes of this contract, de-boned carcasses shall be considered only in instances where it is possible to work back the original carcass price.
One contract will equal a contract size of 1000 kg. Expiry dates and time will be the second Wednesday of the expiry month at 12h00.
The four main hedging months will serve as the contract months, namely March, June, September and December.
“If you are a big player you can take multiple contracts,” Karuaihe said. The minimum price price movement/quotations – 5 cents per kg and quoted in Rand/kg.
Director of Commodities at the JSE, Chris Sturgess said that the performance of the beef carcass contract is encouraging. “By their very nature, futures are intended to manage price risks. As the JSE, we are excited to introduce this product to the market to bring together buyers and sellers to effectively manage price volatility of this underlying commodity,” he added.
Furthermore, the JSE will provide workshops for role players wanting to learn more about the Beef Futures Contract.