(Yicai Global) Dec. 14 – China’s first live-animal futures will debut on the Dalian Commodity Exchange on Jan. 8, when long-awaited trading in physical-delivery hog contracts gets under way.

The China Securities Regulatory Commission made the announcement on Dec. 11 after approving the move in April.

The new pig futures will help market participants manage risk, which is especially welcome after pork prices in China, the world’s biggest producer and consumer of the meat, have gyrated wildly in recent years.

Live pig futures provide not only an open, transparent and continuous price reference but also a tool for breeders to hedge the risk from price swings, an industry insider told Yicai Global.

The cost of pork fell for a second month in a row in November, skidding 12.5 percent from a year earlier, partly because of an increase in the size of China’s pig herds, after steep price gains this year and last because of the devastating impact of African swine fever.

The time is right for the country to roll out live pig futures, the insider said, as the standardization level of pigs available for slaughter is rising along with an increase in the scale of breeding.

The sector has been deeply affected by the 'pig cycle,’ with large changes in supply and demand, the source added. Large swings in the spot prices of live hogs has brought uncertainty to industrial enterprises and difficulties for stable production and operation, harming the sector’s healthy development, the person said.

Big moves in pork prices have also caused the nation’s consumer price index to fluctuate significantly. Consumer prices unexpectedly fell last month, marking the country’s first deflation since October 2009, pulled down by food prices after the cost of pork dropped.

According to draft rules the Dalian Commodity Exchange issued, the unit of the new hog futures is 16 tons per lot, the base price change is CNY5 (76 US cents) per ton, and the daily trading limit is 4 percent of the settlement price of the previous trading day. 

The exchange has also set delivery quality standards that mirror the spot market based on relevant national standards for live lean pigs.

Editors: Tang Shihua, Ben Armour