China ‘working proactively’ towards launching live pig financial futures contracts as pork prices soar

  • The Dalian Commodity Exchange is moving closer to launching the type of financial contract in the world’s largest live pig industry
  • Pork prices in August increased 46.7 per cent from a year earlier, while live pig prices doubled in September from a year earlier
Topic | China economy

Orange Wang

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Pork prices in August increased 46.7 per cent from a year earlier, according to data released by China’s National Bureau of Statistics, while live pig prices doubled in September from a year earlier, according to China’s Ministry of Agriculture. Photo: Reuters

Under pressure due to the ongoing surge in pork and live pig prices, China has moved closer to launching long-awaited financial future contracts for live pigs to help the country’s farmers and traders manage risks in the world’s largest live pig industry, the head of a Chinese commodity exchange said on Wednesday.

Li Zhengqiang, the chairman of the Dalian Commodity Exchange, told a corn industry conference in the port city of Dalian on Wednesday that his exchange is “working proactively” to launch the live pig futures without providing a detailed timeline.

China’s pig population, which accounts for around half of the world’s total, is expected to shrink by up to 50 per cent due to the outbreak of African swine fever, which in turn is pushing pork prices to all time highs at an alarming speed.

Prices in August increased 46.7 per cent from a year earlier, according to data released by China’s National Bureau of Statistics, while live pig prices doubled in September from a year earlier, according to China’s Ministry of Agriculture.

Wang Ruiting, an analyst at one of China’s largest pig farming companies, said the live pig industry has been expecting and studying the use of futures contracts even though there is no schedule for them to be launched.

A State Council directive on pig farming issued on Tuesday did mention the live pig futures.

China currently does not have pig futures to allow the country’s pork farmers and traders to hedge the risks. In the US, the Chicago Mercantile Exchange launched the world’s first live pig futures in 1966, which were later renamed as lean hog futures.

The China Securities Regulatory Commission (CSRC), China’s futures market regulator, initially approved the Dalian Commodity Exchange to prepare for live hog futures in early 2018 as it looked to join the likes of Germany and South Korea in offering the type of financial contract.

In China, a pig’s weight can range from anything from [90kg to 140kg] – a wide range making it hard for standardised contracts

Shang Fulin

Futures contracts allow buyers and sellers to agree on the price of a commodity at a certain future delivery time. The contract allows the seller, such as a pig farmer, to lock in the price of his product, hedging against the risk of a drop in the price.

But former CSRC chairman Shang Fulin, speaking in March, warned one major obstacle remains, because live pigs in China vary greatly in size and weight, making it hard to standardise contracts and delivery.

“In the US, large scale pig farming ensures that a pig’s weight is generally within a range of 180 to 210 pounds (82kg to 95kg), but in China, a pig’s weight can range from anything from [90kg to 140kg] – a wide range making it hard for standardised contracts,” said Shang, who served as CSRC chairman from 2002 to 2011.”

China economy
African swine fever
Food and agriculture
Commodities
Orange Wang covers the Chinese macroeconomy, and has many years of experience with China's monetary and fiscal policy moves. He also covered global market and financial news for a long time, with a particular focus on new technologies and their influences on economic growth and society. Before joining the South China Morning Post, Orange worked as a Shanghai Correspondent for ET Net, a Hong Kong financial news agency.
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