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Flu likely to hasten launch of hog futures trading

By Zhou Yan (China Daily)
Updated: 2009-05-05 07:51

The spread of A (H1N1) influenza virus, which was initially known as swine flu, might help accelerate the debut of China's hog futures market, some industry observers said.

The outbreak of the epidemic flu has resulted in a big drop in hog prices during the past week.

Related readings:  Taiwan to allow investments in mainland futures  Steel futures fare well on day one  China steel futures contract joins global race  No timetable for stock index futures

"The launch of livestock futures may help to lock in the price of the product, and protect hog breeders and processors from drastic price swings," said Feng Yonghui, chief analyst from AND Group, a Beijing-based agriculture service provider.

According to data put out by Beijing Orient Agribusiness Consultant Co Ltd (BOABC), hog prices have dropped from 13.41 yuan per kg in January to 9.88 yuan in April.

"Hog prices fell even more last week, to below 8 yuan per kg in most cities of north China, due to the shrinking demand arising from a fear that eating pork products would result in contracting the virus," said Feng.

The State Council issued a plan to stimulate the development of agriculture and increase farmers' incomes on Feb 2, which, for the first time, said the government would adopt measures like futures exchanges to develop the hog breeding industry.

Dalian Commodity Exchange started the trial run for livestock futures delivery in 2007, but the trading proposal has yet to get the nod from top authorities.

Guo Huiyong, an analyst from BOABC, however, said trading in hog futures was unlikely to take place this year.

"How to set the standards to examine and quarantine livestock is one of the major concerns among top regulators. Unfortunately, the possible eruption of A (H1N1) flu will add more pressure on the authorities to approve the introduction of hog futures," he said.

Livestock processing has developed rapidly in past years. Guo estimated that large-scale livestock processing workshops would have the capability to process up to 300 million hogs per year in total by 2011.

However, some analysts said building an infrastructure that benefits most hog suppliers, rather than the current flu, was the key factor that regulators have to consider before launching hog futures.

"The current overhang of spot prices to contract prices in many existing commodity futures probably will also happen in the proposed hog futures, which will dampen the fast-growing livestock industry," an analyst surnamed Qiao from a Shanghai-based brokerage said.