Dalian hatches plan for egg futures

The Dalian Commodity Exchange is to launch futures contracts for eggs in a bid to expand its agricultural product-related contracts.

China's primary commodity futures exchange said in a statement that it had started collecting industry opinion on a draft proposal for the launch, however it did not give a timetable.

Analysts said that once introduced, the contract may help stabilize egg prices by providing more liquidity to the market, and they could act as an efficient commodity hedge in the long run.

Egg futures have been listed on overseas exchanges for a long time, but contracts on Dalian Commodity Exchange would be a first for China.

The exchange is hoping to see the listing of more agricultural commodities, such as live pigs and timber, according to Liu Xingqiang, its president and chief executive officer.

The Dalian Commodity Exchange offers 10 kinds of futures contracts, six of which are agricultural products.

"Egg futures might be volatile in the beginning due to a lack of liquidity and a higher bid and ask spread. However, with more synchronization with the spot market, price volatility will reduce gradually, and futures prices will also give producers more guidance on prices," said Zhou Lei, an analyst with Xinhu Futures Co Ltd.

"Egg futures have strong trading practicality, as eggs are easy to standardize, which eliminates problems when settling accounts."

According to the exchange, investors can trade contracts with as little as 5,000 yuan ($804).

The proposals suggest each futures contract traded will be worth 5 tons with a minimum price fluctuation of 1 yuan per 500 kilograms.

The price limit is four percent of the previous trading day's settlement price, and the minimum margin is five percent of the value of the contract.

Its announcement added that it currently has several agricultural-related futures contracts, including those for corn and soybean meal, which will provide a hedge to investors.

"Egg is one of the most frequently consumed foods in China, and the price of eggs is not only influenced by chicken feed, but also closely linked to prices downstream in the industrial chain," said Liu Xindi, an industry analyst with Zhuochuang Info Co Ltd.

China's annual production of eggs reached about 23 million tons in 2012, and was valued at 350 billion yuan, according to exchange statistics.

The price of futures can be used as an indicator for farmers so they can control their farming activities accordingly, the exchange said.

Zhang Ruming, a research and development manager with Dalian Fortune Futures Co Ltd, said the limits on the positioning of the egg futures contract were stricter than those for any other contracts.

The proposed limit up - the maximum amount by which the price of a commodity futures contract may advance in one trading day - for positioning is 300 contracts, for instance.

"The margin for newly listed trading items will also be higher than the average, thus the current design for the egg futures contract will effectively prevent speculation and protect stable market operation," said Zhang.