(Yicai) June 25 -- China's Dalian Commodity Exchange will start trading egg, cornstarch, and live hog options to increase the number of such derivatives to 16 in a bid to improve farmers' hedging tools. 

Rules regarding the number of trading units, quotations, and the maximum price fluctuations will match the corresponding futures contracts whereas the minimum price change will be half of that of futures, according to a draft that the northeastern exchange released yesterday. The public can give feedback on the draft until July 1. 

The addition is aimed at widening farmers' and traders' chances of hedging against price changes in highly volatile commodities with non-binding deals in comparison to futures that oblige the seller and the buyer to complete the transaction at a preset strike price. 

The DCE launched futures contracts for eggs, cornstarch, and live hogs in 2013, 2014, and 2021, respectively. Last year, such transactions regarding eggs totaled CNY1.4 trillion (USD192.8 billion), up 24 percent year-over-year, while those for cornstarch rose 11 percent to CNY1.6 trillion, and those for pigs jumped 39 percent to CNY3.4 trillion.

China is the world’s biggest consumer of eggs and live hogs. It is also the second-largest consumer of cornstarch. The need for more predictable pricing is becoming urgent as spot prices of such commodities have been volatile in recent years due to changes in the macroeconomic environment, as well as supply and demand. Last year, prices of eggs, cornstarch, and live hogs moved by 25 percent, 10 percent, and 29 percent, respectively.

Market insiders said that options supplement the function of futures to enhance the flexibility of risk management in these industries while helping traders build better risk management strategies with lower costs and higher capital turnover.

The DCE launched China's first commodity options for soybean meal in 2017. Since then, it has debuted 13 types of options, covering agricultural products, ferrous metals, as well as chemicals. Last year, the DCE made up 36 percent of all trading of commodity options in China and 42 percent of daily open interest, according to an executive of the exchange. 

Editors: Dou Shicong, Emmi Laine