Industry body Grain SA estimates that almost R700-million in value could be at stake as a result of the JSE’s decision on how soybean location differentials are calculated.

“This raises serious questions about who ultimately carries the cost of an inefficient system,” the organisation states.

Grain SA is concerned that the JSE's final decision [to revert to a single reference point] does not provide sufficient and transparent, criterion-by-criterion reasoning against the agreed evaluation framework.

The organisation believes a decision with such significant potential consequences for producers and the broader value chain requires full transparency and proper scrutiny.

Grain SA launched an interdict application challenging the JSE’s decision when it was made in July, however, the JSE has opposed the interdict.

Earlier this month Grain SA led a march to the JSE, handing over a petition signed by 965 supporters to reconsider the stock exchange’s decision to return to a single soybean reference point. This followed other efforts such as technical submissions and engagement to provide the JSE with an alternative solution.

The JSE proposed replacing Randfontein with Driefontein from the marketing season starting on March 1, 2027 and market participants were invited to comment on this proposal by August 14.

For context, the JSE has traditionally used Randfontein as the single reference point for pricing and physical delivery of soybean futures contracts. This predefined location is used to calculate location differentials across registered silos in the country.

For the upcoming marketing season, however, the JSE proposed shifting the single reference point to Driefontein.

According to Grain SA, a multiple reference point model, which it suggested and provided technical submissions to the JSE for, would ensure an equitable way to calculate soybean location differentials, while a return to a single reference point could lead to transport-related deductions based primarily on distance from that point, taking adequate account of regional supply, demand and the actual movement of soybeans.

Grain SA CEO Tobias Doyer says efficient markets require credible price discovery and that the methodology in this sector should reflect where grain is produced, where demand exists and how grain actually moves through the market, adding that unnecessary inefficiency creates costs somewhere in the value chain.

FARMER IMPACT
Under Grain SA’s suggested multi-reference-point model, the average transport deduction is about R113/t, compared with R333/t under the single reference point system.

This alone is a difference of R220/t, which, across the relevant soybean volumes and silo points, Grain SA estimates to total a difference of about R696-million – which is money that disappears somewhere in the value chain.

For producers, a higher differential in the JSE futures contract increases the potential for higher deductions from the price they receive for their soybeans in the cash market.

At the same time, unnecessary inefficiencies and additional costs in the movement of grain can affect the broader food value chain - from processors and manufacturers through to consumers.

“Farmers are being asked to accept a system that, on our calculations, adds significant costs to the value chain,” Doyer says, questioning the JSE’s system that allows hundreds of millions of rand in additional costs as if there is not a more efficient way to move grain from where it is produced to where it is processed.

The multi-reference-point model considers where soybeans are actually available, where processing demand exists and the most efficient route between the two.

In turn, a single reference point calculates the differential in relation to one central point, even when the soybeans may, in reality, move in a completely different direction to reach a processor or buyer.

In simple terms: one system tries to find the shortest and most efficient route to market; the other can price in transport that does not reflect how the grain actually moves.

Grain SA explains that if soybeans are produced in one area and the natural buyer is significantly closer than the single reference point, it makes little economic sense to calculate the price as though that grain must first move towards the reference point and provide market power with the possibility to abuse prices given the published standard and no transparency regarding premiums in the physical market.

“That creates a theoretical transport cost that does not necessarily exist in the physical market,” the organisation points out, adding that when that difference is applied across the market, it becomes substantial.

Grain SA believes this creates an unnecessary inefficiency that should concern both farmers and the public.

A farmer already operating under tight margins cannot simply absorb hundreds of rand per ton in additional deductions without consequences. Additionally, an agricultural value chain carrying unnecessary costs is ultimately less competitive and less efficient.

“This is bigger than a technical disagreement between Grain SA and the JSE,” says Doyer.

“If an unnecessary cost is built into the system, somebody ultimately pays for it. The farmer may receive less, costs may move further through the value chain, or both. South Africa cannot afford inefficiency in a food system that must serve both sustainable farmers and consumers.”

“Every unnecessary rand built into the system has to be carried by somebody. If farmers receive less, their sustainability is affected. If costs are passed further through the chain, consumers can ultimately feel the effect. Neither outcome is acceptable when a more efficient alternative is available,” Doyer says.

Grain SA will continue pursuing all appropriate processes to protect producer interests and promote a fair, transparent and efficient agricultural derivatives market.