BUSINESS NEWS AUGUST 3, 2020 / 10:36 PM / UPDATED 12 HOURS AGO
China's hog futures set to make debut, but faces big challenges
Emily Chow
6 MIN READ
SHANGHAI (Reuters) - China’s long-awaited live hog futures contract is almost ready, offering a vital hedging tool for the world’s largest pork industry, which has been roiled by an African swine fever outbreak that devastated herds and sent pork prices soaring.
FILE PHOTO: An employee works next to signs showing pork prices at a market in Beijing, China December 8, 2019. REUTERS/Jason Lee/File Photo
The country’s first live-animal physical-delivery contract has been planned for a decade, and is expected to be popular with domestic traders on the Dalian Commodity Exchange (DCE).
But complex delivery logistics, tight quality-control standards, a local lack of experience with futures contracts and a retail trading community that has wildly distorted other markets will be key challenges.
China typically slaughters about 700 million pigs annually and produces more than 50 million tonnes of pork – about half of global output. Hog and pork producers have traditionally relied on contracts that define volume and delivery requirements, but have little control over or insight into costs, especially in future months.
(GRAPHIC - China pork output vs world production: here)
Reuters Graphic
That lack of cost control was made clear by the country’s widespread outbreaks of African swine fever, which since 2018 have nearly halved the pig herd and disrupted hog and pork supplies throughout the country.
Producers are now rebuilding the herd, which stands at 339.96 million head as of end-June, but average pork prices remain near record highs, making the launch of a transparent pricing and hedging tool a welcome development.
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