S. Africa Farmers Say Wheat-Transport Cost Rules to Cut Profit

South Africa’s biggest growers’ association said a plan by JSE Ltd. (JSE), which manages the nation’s commodities exchange, to raise the reference price for the cost of transporting wheat from farmers to buyers by more than inflation will mean producers will get less for their grain.

The amount deducted from every metric ton of wheat transported may increase as much as 37 percent to 575 rand ($56) a ton for growers the Western Cape province, where 46 percent the nation’s wheat is produced, if the JSE’s changes are made, Pretoria-based Grain South Africa said in an e-mailed statement.

The so-called location differential is applied to contracts to reflect the cost of moving stock from any one of 198 Safex-registered silos in the country to Randfontein in the northern Gauteng province, the point from which the amount to be subtracted is calculated, according to the JSE, which also manages the country’s stock and bond exchanges.

“Producers will be offered even less for their product because of the direct impact by the location differential on pre-season contract prices for the new season,” Grain SA said. “It therefore remains difficult to accept that wheat producers’ income should to a great extent, be determined by derived prices.”

The average national increase in the differential for the Randfontein wheat contract will amount to 26 percent, while for the Paarl, Western Cape province contract it will be 18 percent, according to the association.

“That was not the final version; what was sent out yesterday was a proposal for the market to then give us feedback,” Chris Sturgess, the commodities derivatives director at the JSE, said by phone from Johannesburg. “The final version should be out in the first week of September.”

Grain SA, which has about 7,000 members, in April last year said the JSE should stop using the differential and allow the market to find its own transport-pricing levels.

To contact the reporter on this story: Tshepiso Mokhema in Johannesburg at tmokhema@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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