| DALIAN, China
DALIAN, China May 5 China's Dalian Commodity
Exchange (DCE) has applied for regulatory approval for its first
hog futures contract although the latest addition to the
exchange's vast agricultural arsenal may not be ready until next
year, an official said.
In its first step to launching the product, the exchange
submitted a formal application for approval for a live hog
contract to the China Securities Regulatory Commission (CSRC),
Yu Li, deputy director of the information department, told
Reuters on Thursday.
DCE chief executive Wang Fenghai said in March the exchange
aimed to launch the contract in the world's top pork market by
the year-end. Officials say that timeframe is ambitious.
"Live hog futures is a very complicated product," said Yu,
adding the exchange hoped to complete preparatory work this
The exchange, which competes with commodity markets in
Shanghai and Zhengzhou, has spent more than a decade researching
the feasibility of hog futures, which will complete the
exchange's hedging offering for the whole meat industry supply
Futures aim to make it easier for traders and pig farmers to
hedge the risks of price swings in the highly volatile market.
Dalian also has soybean, soymeal and corn futures.
China consumes about 55 million tonnes of pork a year, half
of the global total, but production is highly cyclical. A plunge
in supplies last year pushed prices to record levels, hurting
processors like global leader WH Group and spurring a
surge in cheaper imports.
Developing a financial derivative based on a live animal is
especially challenging, particularly in a market where
small-scale farming still dominates, leading to little
uniformity of breeds or farming practices.
But tougher environmental regulations have pushed many small
farmers to exit the business, leaving a greater share of the
industry to large-scale players.
"Ten years ago, pig farmers were small scale and the
standardisation problem was really serious. Today a lot of large
pig farmers have already reached scale," said Yu.
CSRC did not respond to a request for comment. The regulator
could require more preparatory work from an exchange before it
approves a new product.
Once approved, DCE can draw up rules and specifications for
the product. It would then need a final go-ahead from the State
Council, or Chinese cabinet, before trading started.
The exchange also recently said it was developing a lean
pork price index with the agriculture ministry, using data
gathered from 89 large slaughterhouses from 16 provinces.
The index will update spot prices daily and could in the
future be used to develop an index-based futures contract.
(Editing by Edmund Blair)