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Global price swings lift commodity market

By Wang Lan (China Daily)
Updated: 2008-04-08 10:06

Sharp agricultural price swings on the global market have boosted local commodity turnover as food processors, wholesalers and speculators rush to cover risk exposure.

Increased trading has enhanced market liquidity, drawing more players - including an increasing number of growers and speculators.

The Dalian Commodity Exchange, one of the nation's three commodity futures exchanges, was the world's second largest agricultural futures market by trading volume in 2007, the US Futures Industry Association said. The exchange accounted for 29 percent of total trading volume in agricultural futures worldwide.

The combined trading volume of all six agricultural product futures on Dalian's exchange was 2.6 million hands yesterday, up 326 percent from a year earlier.

The futures market serves not only as a tool for food processors to hedge against risks resulting from price fluctuations, but also as a barometer for growers. Market-oriented decisions on planting areas and product range can improve the supply and demand balance and help growers maximize earnings from selling their produce on the spot market. This is particularly relevant at a time when many agricultural produce prices are surging at a much faster rate than before.

For example, soybean futures on the Chicago Mercantile Exchange surged 20 percent in 2007. On the Dalian exchange, the most actively traded soybean futures contract for delivery in January 2009 soared 59 percent over the previous year.

Shi Yan, managing director of the research department at China International Futures Co in Dalian, said he expects an expanded investor base to help increase domestic futures market liquidity in the coming years.

"In the past year, an increasing number of growers have participated in the domestic agricultural futures market," Shi said. "Grain wholesalers usually trade futures contracts on behalf of these growers to help them reduce futures trading risk.

"An actively traded futures market can provide growers a transparent pricing system with constantly updated and readily accessible price information to help them arrange their planting activities."

Analysts said there is large growth potential for the domestic futures market, as more funds will be allowed to invest.

"The increase in trading volume on the Dalian bourse is expected to accelerate in the near future, as the exchange is set to introduce more futures contracts, including hog futures, in 2008," said Zhao Qiang, managing director of the research department at Tianqi Futures Co, based in Harbin.