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Expansion of risk control tools for deep derivatives in the pragmatic spot market
Release date: September 20, 2019

As the most representative product of futures service real economy, corn futures have been running smoothly for 15 years. Up to now, corn futures have received effective response in the depth of the industry. The 15th anniversary of corn futures market reform was held in September this year, which was the driving force for corn futures market reform.

"Securities Daily" reporter learned that, on the basis of the depth of the current pragmatic spot market, DCE will continue to provide more extensive derivatives services for industrial enterprises. At present, it is actively promoting the listing of pig futures, accelerating the research and development of downstream varieties such as edible alcohol, industrial alcohol and starch sugar, striving for the early launch of corn starch options, and striving to provide more risk management tools for enterprises.

   "Futures power" has been echoed by the industry  

Corn is one of the three major rations in China, and also an important source of feed. For many years, the achievements made by futures in serving the healthy development of corn industry have been affirmed by industrial enterprises. It is understood that corn futures were listed on the first day of Taishang exchange's opening in 1993. Over the past 15 years, DCE has continued to promote the stability and development of corn futures market, and actively contributed "futures power" to the reform of corn marketization.

"In the past 15 years, closely surrounding the industrial chain of corn production and processing and feed breeding, the exchange has continuously launched egg, corn starch futures and soybean meal options, corn options, related commodity swap business and commodity index related to the industrial chain on the basis of listed corn futures, providing diversified hedging tools for enterprises in the corn industry chain." Li Zhengqiang, Secretary of the Party committee and chairman of the board of directors of Dashang stock exchange, told Securities Daily that he would strive to continuously enrich the derivatives and products of corn industrial chain, and provide diversified choices for industrial enterprises to manage price risks by using futures market.

It is reported that in the first eight months of this year, the turnover of corn futures was 62 million, the turnover was 1.2 trillion yuan, and the average daily position was 940000 hands, which were 46%, 55% and 35% higher than that of the same period last year, providing sufficient market liquidity for industrial enterprises to manage risks. This year, 3.14 million corn options have been traded, with a turnover of 850 million yuan. The market function has initially emerged. It has carried out 21 commodity exchange business involving corn industry, and launched 10 commodity indexes related to corn production and processing and feed breeding, providing convenience for diversified risk management and asset allocation.

Li Zhengqiang also said that in the continuous optimization of corn varieties rules and regulations, the quality and efficiency of market operation were continuously improved.

"Securities Daily" reporter learned that last year, 5687 unit customers participated in corn and corn starch futures trading, with turnover accounting for 34% and positions accounting for 51%. The market structure has been continuously optimized and improved. In recent years, the correlation between the futures and spot prices of corn industry chain varieties has been steadily improved. Among the top 10 leading enterprises in corn consumption and trade volume, 6 enterprises each participate in the futures market, and the pattern of combining production and finance of corn has taken shape.

Hu Jie, deputy director of agricultural products division of Dashang stock exchange, told the Securities Daily that in recent years, the level of agricultural products futures serving the real economy has been continuously improved. Taking corn futures as an example, since its listing, it has always kept pace with the times and innovated and improved contract rules according to the changes in the spot market. Through the group delivery system, DCE has set up delivery warehouses in production areas. At present, 11 group delivery warehouses and 13 sub warehouses have been set up to meet the hedging and delivery needs of industrial customers.

   Swine and other downstream futures varieties are being promoted  

As one of the most representative services for the real economy, corn futures has been well received by industrial enterprises. In the 15 years of corn futures listing, China's corn industry has withstood a series of major tests, such as the full liberalization of grain prices in 2004, the introduction of temporary collection and storage policy in 2008, and the cancellation of temporary storage in 2016. The market-oriented reform has made new progress and new achievements. From the perspective of trade mode, it has developed from a simple "buy it now" mode to a variety of flexible ways, such as basis pricing, commodity swap, OTC options and "insurance + futures". The function of serving the real economy has gradually been brought into full play.

"Since the beginning of this year, due to the impact of African swine plague and the sharp decline in corn consumption, many corn spot traders have used the futures market to hedge risks. Corn futures are gradually becoming a haven for spot enterprises and a stabilizer of the spot industry chain." Li Zhengqiang said that in the next step, Dashang will continue to improve the corn industry chain derivatives system.

"At present, we are actively promoting the listing of pig futures, accelerating the research and development of downstream varieties such as edible alcohol, industrial alcohol and starch sugar, striving for the early launch of corn starch options, and striving to provide more risk management tools for enterprises." At the same time, he will continue to promote the innovation of rules and regulations, explore further innovation of delivery system, improve delivery management, and promote the comprehensive integration and smooth flow of corn market from north to south, from production area to marketing area, and from waterway to land.

In addition, it will continue to expand the ways and means to serve the corn industry. We will continue to promote the pilot projects of "farmers' income security plan" and "enterprise risk management plan", explore and carry out the pilot project of "new grain bank", actively promote the pilot project of corn basis trade, and strive to form typical experience that can be widely copied.

It is worth mentioning that in recent years, the customer structure of agricultural products futures has been continuously optimized. According to statistics, in the first half of this year, there were 460000 customers participating in the trading of agricultural products futures of Dalian Mercantile Exchange, and the position of unit customers generally increased. The hedging efficiency and price discovery function of agricultural products futures were generally improved, among which the hedging efficiency of soybean No.1, corn and egg increased by 95%, 94% and 72% respectively compared with the same period of last year, and the price correlation of futures and cash increased by 40%, 75% and 40% respectively.

(author: Wang Ning source: Securities Daily)