March 15, 2006

China starts live pig futures market to hedge risks
 

Live pig contracts are likely to be the next futures product to be traded on the Dalian Commodity Exchange to protect producers from the whimsical price changes in China's volatile hog market.

Zhu Yuchen, president of the Dalian exchange, wrote in his proposal to the National People's Congress that the time is ripe for live pig contracts to be listed on the exchange.

Hog-raising is one of the major income sources for Chinese farmers. However, prices have been fluctuating in recent years due to factors such as climate, feed cost and demand. Live pig futures allow buyers and sellers protect themselves against price swings.

Nationwide, live pig prices have been falling since late 2004 and nosedived at the end of last year. In Hebei Province, one of the major areas for hog-raising, prices have dropped 50 percent on year to RMB5 (US$0.62) a kilogramme by the end of 2005.

The instability of pig prices poses huge risks for those in the pig industry, Zhu said, adding that such a situation may cause farmers to abandon pig farming.

China has 482 million pigs in 2004 with a market value of RMB400 billion (US$ 49 billion). It also has the world's highest consumption of pork.