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Economy

Regulator gives green light to corn, cotton options

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2018-06-13 15:52:12Global Times/Agencies Editor : Li Yan ECNS App Download

Market awaits official trading date from CSRC as China expands tool range

China has approved the launch of corn and cotton options, two of the country's commodity exchanges said, as the country expands the range of tools available to hedge against price-swings in agricultural markets.

China launched soymeal and sugar options earlier this year, the first agricultural derivatives products in the world's biggest commodity market.

It is not clear when the new products will be launched, but approval by the China Securities Regulatory Commission (CSRC) is a first step in making them available for trading.

"This will... provide more abundant and flexible risk management tools and trading strategies for upstream and downstream entities in corn and related industries," the Dalian Commodity Exchange said in an emailed statement.

Options give the holder the right to buy or sell a commodity at a particular strike price and are widely used in Europe and the US by investors across commodities.

China is the world's second-largest consumer of corn, and corn futures on the Dalian exchange are the country's second-largest agricultural product derivative market by volume.

The Dalian bourse added that hedging needs have increased following recent policy reforms that have seen China abandon State stockpiling of the grain and allow the market to play a bigger role.

The news comes amid heightened volatility in cotton futures, which rallied 18 percent from early April to the end of May, fueled in part by worries over crop damage from strong rains, as well as by heavy speculation.

Options will help medium- and smaller-sized traders and processors of cotton, which face high costs and have low capabilities for handling risk, the Zhengzhou Commodity Exchange said in a statement.

China will import 1.4 million tons of cotton in the 2018/19 crop year, its agriculture ministry said on Tuesday, raising its forecast from last month's 1.2 million tons.

The higher estimate was due to a larger-than-expected production deficit, with Chinese consumption of the fiber growing 1.2 percent from the previous year's level to 8.4 million tons, it said.

But some traders said the forecast was still too low, with one estimating imports in the range of 1.5 million to 2.5 million tons.

  

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