SA exchange sees beef-hedge need as drought spurs grains

January 27, 2016, 4:36am

By Tshepiso Mokhema, Bloomberg Business
Photo: Wikipedia Commons

South Africa’s stock exchange is hoping beef producers and investors will turn to new futures contracts to hedge risks from price swings, following the grain industry’s lead after the worst drought in more than a century pushed corn costs to a record high.

"With the drought out there, you find a lot of players using the futures markets for the grain side, where hedging will expose you to grain prices," Johannesburg Stock Exchange Commodities Derivatives Director Chris Sturgess said by phone Tuesday. "The opportunity now is to extend that same tool to the beef sector, particularly the abattoirs."

The beef-carcass contract for March delivery has risen 5.9 percent to 36 rand ($2.19) a kilogram since it began trading Dec. 14 on the South African Futures Exchange.

Trading began after six months of consultations and as participants showed interest in a tool to manage price risks, Sturgess said. “The Red Meat Abattoirs Association are our partners and we have signed contracts with a number of their members," he said.

South African red-meat producers slaughtered more cattle last year as the global El Nino weather pattern led to drought in the country. The national cattle herd is about 13 million heads, with about 2.2 million butchered annually.