New differential system could aid wheat farmers

A two-year long study by Grain SA has shown that using multiple destinations to calculate the location differential, instead of Randfontein as is currently done, has the potential to bring huge savings and greater transparency to the wheat industry.

Heleen Viljoen, agricultural economist at Grain SA, said at Grain SA’s regional meeting recently held in the Western Cape that the switch could reduce the number of trucks on South African roads by 42% and save the industry around R300 million. This, in turn, would greatly improve wheat production profitability and food security.

She said that creating an alternative differential for wheat was much more difficult than it was for the soya industry, because soya production and demand was concentrated in specific areas. More than 50% of South Africa’s wheat, however, is produced in the Western Cape, of which 80% is processed and used in the province.

In response to questions, she said that premiums currently paid for wheat should not be affected by the change, as these were negotiated between buyers and sellers.

Farmers in outlying regions should also be better off than when Randfontein is used to calculate the location differential.

“The differential should be substantially lower than R800/t regardless of the location of a farm,” she said.

Derek Mathews, chairperson of Grain SA, added that the calculation of the multiple differentials would be done in real time based on real-time data that took into account all historical data concerning the movement of wheat between different location points.

However, farmers need to be patient as it could be another two years before the alternative differential will be tested on the Johannesburg Stock Exchange (JSE).

Viljoen said the JSE had indicated that it would not test any alternative differential systems for wheat until it had completed the evaluation of the alternative differential system for soya beans, which would take another two years.

Results with the alternative system for soya beans on the JSE have so far been promising. Viljoen explained that the number of soya bean contracts exchanged on the JSE had increased, but this could also be because the soya bean industry was growing significantly, resulting in more soya beans being available in the market.

GLENNEIS KRIEL Derek Mathews (far left), chairperson of Grain SA, explaining how Grain SA‘s operations will be restructured at the organisation‘s regional meeting in the Overberg. Watching on are Jose de Kock (middle), executive of region 27, and MJ Swart, Grain SA‘s regional manager of marketing and farmer development.