China hopes early rice futures contract means bigger global price role

China started the trading of early rice futures contracts Monday on the Zhengzhou Commodity Exchange, in central Henan Province, with the goal of a larger role in global grain prices.

 

Early rice is a major grain product in China. The new contract means that all major farm produce items in China now have futures contracts.

 

The China Securities Regulatory Commission Chairman, Shang Fulin, told the opening ceremony the agency would shift its work focus to improve existing futures contracts rather than listing new farm products.

 

Early rice futures trading would help to improve domestic grain pricing and provide grain traders with more risk control measures, he said.

 

China is the world's largest rice producer and consumer, and its crop accounts for about 30 percent of the world's total.

 

Rice is also China's largest grain crop. Over the past 30 years, annual rice output has ranged from 180 million to 200 million tonnes, about 40 percent of the total grain output.

 

EARLY RICE IDEAL FOR FUTURES

 

Analysts said about 50 percent of the country's early rice output ends up being traded on grain markets, rather than consumed locally. Last year, the early rice output stood at 31.58 million tonnes.

 

Calculated at 1,800 yuan (264 U.S. dollars) a tonne, the 50 percent of the early rice that changes hands could be worth about 28 billion yuan.

 

The high trading-production ratio is only one reason that early rice is considered by analysts to be the most suited to futures trading. Other reasons include a long shelf life (which reflects its low water content), low price and its uniform quality (which makes it easier to set standards).

 

An analyst with the Zhengzhou Commodity Exchange, Qiao Linsheng, said the country started early rice futures trading because it has a smaller output compared with other grain products and thus was more stable.

 

Early rice is also the year's first harvest, and so it can serve as a barometer of prices for subsequent crops.

 

A grain producer in suburban Changsha, the capital of central Hunan Province, said that grain prices last year were like a roller coaster, and farmers never knew what the prices would be.

 

The early rice futures might inform us about future grain prices and help us decide what to plant and what not to, he said.

 

More than 400 million farmers from 13 provinces, including Hunan, Jiangxi and Guangxi, are in early rice production areas.

 

SEEKING GLOBAL PRICE ROLE

 

China has chosen to start early rice futures trading at this particular time because it wants to improve its grain pricing system and eventually have more influence on global grain prices, Nanhua Futures general manager Luo Xufeng said.

 

The contract might help the country have a bigger say in global grain pricing and make it an information, trading and pricing center for grain, according to a statement from the Zhengzhou Commodity Exchange.

 

China is the fifth country to launch grain futures trading. The United States, Thailand (the world's largest rice exporter) and India (the second-largest rice producer) have rice futures contracts.

 

The Dalian Commodity Exchange in northeastern Liaoning Province started soyabean futures trading, China's first grain futures contract, in the mid-90s. Other farm products, including corn, wheat and cotton, were added later on the Dalian and Zhengzhou exchanges.

 

In a mature farm produce market, the government could draw up support policies for farm products based on futures prices, Qiao said. Farmers and grain traders can be informed ... and take necessary measures to avoid losses, he added.

 

The early rice September contract ER909 rose 5.05 percent Monday to close at 2,038 yuan per tonne.

 

Source: Xinhua