In this file:
· China's hog futures slump over 12% on debut, higher supplies loom
· China’s Pig Futures Sink on First Day After Long-Awaited Listing
· China launches hog futures on Dalian exchange after African swine fever triggers wild swings in pork prices, inflation
China's hog futures slump over 12% on debut, higher supplies loom
* Dalian live hog Sept futures contract falls over 12%
* Increasing pork output, weak demand to pressure prices - analysts
* High margin requirements to reduce contract’s initial hedging use - consultant
By Emily Chow and Dominique Patton, Reuters
January 7, 2021
SHANGHAI/BEIJING, Jan 8 (Reuters) - China’s live hog futures tumbled in their debut on the Dalian Commodity Exchange, with analysts attributing the sell-off to the contract’s high listing price and expectations of increasing supplies.
The front-month September contract closed 12.6% lower at 28,290 yuan ($4,376.95) per tonne on Friday versus its 30,680 yuan listing price.
Trading volume stood at 91,056 lots, versus 1.4 million for Dalian’s most active contract for soymeal, a key pig feed ingredient.
Comparatively, spot hog prices in major producing province Shandong JCI-HOG-SHOUGN were at 35.8 yuan per kilogramme on Thursday.
China, the world’s largest pork producer and consumer, is the second market globally to trade mainstream live hog futures after the United States. It is also China’s first live-animal physical-delivery contract.
“The pork cycle is expected to go down with increased supply,” said Wang Dan, Hang Seng Bank China’s chief economist, referring to pork’s cyclical price movement based on output.
Weaker recovery in consumer demand due to higher unemployment also weighed on prices, she added.
The live hog futures launch, a decade in the making, comes at a crucial time for the pork industry in China, which has a huge appetite for the meat that is a staple in local cuisine. The country’s hog herds were wiped out after an African swine fever outbreak in 2018 killed millions of pigs, disrupting pork supplies and sending prices to record highs.
Cashing in on high prices, hog producers are now rebuilding herds by setting up huge, modern breeding facilities.
New Hope Liuhe said it will “actively participate in hog futures trading to avoid risks and help stabilise business,” adding the contract will help China’s hog industry standardise products.
Along with industry peers including Muyuan Foods and Wens Foodstuff Group, it has received regulatory approval to be a delivery warehouse.
“Successfully setting up the delivery warehouse will make our hedging possible,” said Li Qing, head manager of New Hope Liuhe’s hog futures project.
High margin requirements, however, will limit the contract’s initial use for hedging.
“If you have 20-30 million hogs, you need tens of billions of yuan to fully hedge. None of the producers are ready to devote that much cash,” said Jim Huang, chief executive at China-America Commodity Data Analytics...
China’s Pig Futures Sink on First Day After Long-Awaited Listing
via Investing.com - Jan 07, 2021
(Bloomberg) -- China’s live hog futures tumbled on their first trading day after a hotly anticipated debut as the industry looks for a safeguard against wild swings triggered by one of the world’s worst animal disease outbreaks.
The contract on the Dalian Commodity Exchange slid as much as 9% on Friday. The product, some 20 years in the planning, aims to provide a key hedging tool for hog breeders recovering and expanding production after a deadly African swine fever outbreak destroyed local herds and drove prices to a record.
China accounts for almost half of global pork consumption and production with a market value of about 2 trillion yuan ($310 billion). Given the importance of the meat in the Chinese diet and its implications for national food security, the government has moved to modernize hog production, improve quality and cut costs. The African swine fever outbreak in 2018-19 accelerated the push.
The virus wiped out small backyard pig farms and forced a shift toward large-scale operations, which are in a better position to trade the contract and manage their risks. The futures contract, which will be the first product in China to allow deliveries of live animals, will help promote standardization of hog breeds to meet the exchange’s delivery rules and specifications.
Futures for September delivery were at 28,335 yuan a ton as of 9:58 a.m. local time, compared with a base price of 30,680 yuan. Prices earlier reached a low of 27,930 yuan. More than 50,000 lots changed hands.
“The trading volume of the live hog futures is expected to be massive, given the relevance of the product to the broader economy,” said Li Moyu, a Shanghai-based analyst at Orient Futures, a brokerage. Trading will be dominated by the country’s leading producers at the beginning, she said…
… The contract size in Dalian is 16 tons, which the bourse says is equivalent to the total weight of animals in a full truck, the usual way to transport pigs in China. This will help resolve size differences in pigs.
The exchange has also taken steps to avoid the bouts of manic trading seen on Chinese commodities exchanges in the past, when the nation’s hordes of speculators piled in and out of everything from eggs to iron ore.
For the latest contract, DCE has set price limits at 16% for the first trading day and 8% subsequently. It’s imposing margin requirements of 8% for clients with hedging needs and 15% for speculative trading during the initial stage.
There’s also a cap on open positions…
China launches hog futures on Dalian exchange after African swine fever triggers wild swings in pork prices, inflation
o Contracts expiring in September and November fell by almost their 16 per cent limit on first day of trading, as did the contracts due January 2022
o Breeders can capitalise on futures prices to arrange production plans and hedge against risks to stabilise price and shorten ‘hog cycle,’ CSRC says
Zhang Shidong in Shanghai, South China Morning Post (China)
8 Jan, 2021
China has kick-started the trading of hog futures as the world’s biggest consumer of pork moves to provide a hedging tool for breeders who experienced bouts of wild price swings over the past two years caused by the African swine fever outbreak.
Three types of contracts debuted on the Dalian Commodity Exchange on Friday. Opening a contract requires about 40,000 yuan (US$6,186) based on the minimum margin requirement of 8 per cent set by the exchange operator. Prices slumped by almost their 16 per cent limit.
The launch is a culmination of two decades of planning, a milestone for the industry that influences a large component of the nation’s consumer-price index. The African swine fever outbreak in 2018 forced the government to cull millions of pigs, crippling supply and causing a shortfall of 4.3 million tons of meat in 2020, according to a Fitch Ratings estimate.
Hog futures can serve players from breeding to animal-feed producers, according to Fang Xinghai, vice-chairman of the China Securities Regulatory Commission.
“Breeders can capitalise on futures prices to arrange production plans and hedge against risks to stabilise price, ensure supply and shorten the ‘hog cycle’ for the pig-farming industry,” Fang said at the launch ceremony.
China accounts for almost half of the world’s consumption of pork, the price of which rose to a record last year as swine fever forced farm closures, wiped out half of the nation’s pig population and throttled supply to end consumers. The crisis once prompted the Chinese government to tap into its pork reserves and subsidise consumers to suppress inflation.
Domestic pork prices currently average 36 yuan per kilogram, rebounding from a low of 26 yuan reached in November, on shrinking inbound shipments after Covid-19 was detected in imported frozen meat and the sporadic outbreak of the swine fever heading into winter...
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