24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The group’s overall risk management programme focuses on the unpredictability of financial markets, especially commodity
derivative markets, and seeks to minimise potential adverse effects thereof on the group’s financial performance.
The methods and assumptions used for the year are consistent with the previous year. Major risks have been identified and are
managed as set out below.
24.1 FINANCIAL RISKS
24.1.1 Market risks
24.1.1.1 Commodity price risk
The value of the grain commodities and the fair value of pre-season forward purchase contracts on
the statement of financial position, are exposed to commodity price risk.
The group uses derivative instruments to manage and hedge exposure to commodity price risk. In
accordance with the group’s risk management policy, only minimal unhedged market positions exist
from time to time. The value of available commodities, the net value of futures contracts and option
contracts and the value of the net position of the pre-season contracts indicate an effective hedge.
The hedging instruments used consist of futures contracts and option contracts. The net revaluation
difference of the instruments used for hedging was taken into account against the value of the grain
commodities and the fair value of pre-season contracts. The value of commodities on the statement
of financial position reflects the market value thereof at year-end and the fair value of the futures contracts,
option contracts and pre-season contracts is also included in the statement of financial position.
Positions that are not hedged on the Safex market leave Senwes with an exposure to price movements.
This risk is exacerbated during low market liquidity and high market volatility. Senwes maintains
a strict policy and limits are set at low levels with regard to open positions, whether speculative
or operational in nature. The status of open positions are monitored daily and reported to appropriate
senior management. The net open position as at 30 April 2020 was not material.
The following line items on the statement of financial position are affected by commodity price risk:
GROUP
NOTES
2020
R’m
2019
R’m
Grain commodities 10 62 155
Other commodities (raisins and fuel) * 10 239 -
Derivative financial instruments (assets) 20.1 86 52
Trade and other receivables/(payables) 11, 17 - ** 5
Derivative financial instruments (liabilities) 20.2 (72) (30)
Total 315 182
* KLK Landbou Limited (“KLK”), a subsidiary of the group, is primarily exposed to price risk of changes in
other commodities (raisins), livestock and fuel prices. KLK does not anticipate a sharp drop in trade,
livestock and fuel prices in the near future. No cover has been put in place for the risk. KLK reviews its
trading, livestock and fuel prices on a regular basis for purpose of effective financial management.
** Amount is below R0,5 million.
Senwesbel Limited Reg no: 1996/017629/06 SENWESBEL ANNUAL FINANCIAL STATEMENTS 2020 58