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In order to adapt to the changes on the corn spot market and enhance the futures market’s capacity for serving the “San Nong (agriculture, farmers and rural areas)” and the real economy, on December 20, Dalian Commodity Exchange (DCE) issued a notice on the amendments to the “Corn Delivery Quality Standards of Dalian Commodity Exchange”, which improve the unit weight indicators for the standard product and alternatives of corn as well as the discount standards for the unit weights of the alternatives and the moldy grains. The revised standards shall come into effect from the C1501 Contract.
According to the notice, the unit weight of the standard product of corn will be adjusted from 650g / L to 675g / L, the unit weight of the alternatives will be changed from 620g / L to 650g / L, the unit weight discount for the alternatives will be increased from RMB 20 / ton to RMB 40 / ton, and the moldy grain discount for the alternative will be modified from RMB 25 / ton to RMB 50 / ton. With the adjustments to the delivery quality standards, before the last working day in November 2014, all of the existing standard warehouse receipts of corn would be canceled. As of the first working day after the last delivery day of the C1411 Contract, the clients may, according to the new delivery quality standards, handle the delivery forecasting and the quality inspection, as well as apply for the registration of new standard warehouse receipts as of the first working day in December 2014.
Since the restoration of the listing in 2004, the corn futures have seen sound operation and functioned well in price discovery and hedging against risks, but in recent years great changes have taken place in the corn spot market, which has continuously improved the requirements for the quality standards. In terms of production, since the policy of higher prices for higher quality was introduced in the purchase of the state temporary storage in 2009, the farmers have been much more eager to grow the high quality corn, and with the development of new varieties and the improvement of cultivation techniques, the quality of the corn produced in Northeast China has been significantly enhanced, with the average unit weights generally increased by about 20g / L in various provinces and the corn of 650g / L and below accounting for less than 10% of the spot market. In the aspect of consumption, as the corn is the energy raw material in the feed and the unit weight represents the energy level, in the procurement most of the feed enterprises require the unit weight of the corn at 670g / L to 700g / L, mostly at 680g / L. The feed enterprises usually would not use the corn of the unit weight of less than 650g / L which may have an adverse impact on the growth of the livestock. For example, in the procurement of the duck, chicken and pig feed, the farming enterprises require the unit weights of the corn at not less than 660g / L, 670g / L and 680g / L respectively. In the stock circulation, since 2010, the average unit weigh of the corn produced in Northeast China has reached over 700g / L and the corn distributed via the three major ports of Dalian, Jinzhou and Yingkou where the delivery warehouses are located (hereinafter referred to as the port corn) has recorded an average unit weight of about 680g / L. With the changes on the spot market, the spot enterprises hope to accordingly improve the delivery quality standards of the corn futures so as to better meet their demands for hedging.
An official of the agricultural products business division of DCE said that the adjustments to the corn quality standards have been based on the changes of the corn spot market and the demands of the enterprises. In setting the specific indicators, in addition to the spot production, distribution and consumption, the changes of relevant indicators in actual delivery have also been taken into consideration. In the process of delivery, in order to prevent the quality degradation in transportation and storage, the sellers would prepare the goods of slightly higher quality than the delivery quality standard. For example, when the unit weight of the standard delivery product is set at 675g / L, the indicator can reach about 680g / L or even higher in actual delivery; according to the relevant data of the port corn from 2009 to 2012, the total amount of the corn of the unit weight of over 675g / L was over 100,000 tons more than that of over 680g / L each year in average, therefore, if the unit weight is set at 675g / L, the amount of the corn qualified for the unit weight indicator of the standard product will be relatively plentiful. Meanwhile, to ensure the enough amount available for delivery in special years and the delivery safety, the alternatives have been retained in the adjustment, but in order to encourage the delivery of the standard products in normal years, the discounts slightly higher than the spreads on the spot market in normal years have been set for the unit weights of the alternatives and the moldy grains.
The official said that the adjusted delivery quality standards of the corn futures are consistent with the general levels of unit weight and moldy grain of the dominant corn products in the production, consumption and distribution on the current spot market, can meet the demands of the corn-related upstream and downstream enterprises, and will significantly improve the operation quality and service capacity of the corn futures market. Next, DCE will further research and optimize the distribution of the delivery warehouses of the corn and other existing products, so as to facilitate the delivery of the market and better serve the industrial enterprises.
To ensure that the adjustments to the delivery quality standards for the corn contracts can fully reflect the changes in the spot market, since early 2013, DCE has carried out extensive research and survey of the spot market. On the one hand, DCE investigated the three processes of production, consumption and distribution of the corn at the relevant industry associations such as the national grain standards committee, inspection agencies, feed companies and major ports, collecting and analyzing 280,000 sets of corn inspection data of the ports in Northeast China in recent four years. On the other hand, through questionnaires and discussion meetings, DCE extensively solicited the opinions from the buying and selling clients and member units.
According to the sources of the spot enterprises, as the adjusted delivery quality standards of the corn futures are consistent with the general levels of unit weight and moldy grain of the dominant corn products in the production, consumption and distribution on the current spot market, can meet the demands of the corn-related upstream and downstream enterprises, and will result in a closer relationship between the futures and spot markets of corn; the new standards fully reflect the requirements for the quality of the feed raw materials in procurement, making the corn futures function better in the discovery of the dominant prices on the spot market, helping the feed enterprises use the futures market to better manage the risks and improving the hedging effect of the enterprises. Market analysts also pointed out that the adjusted delivery quality standards, which are more based on the current spot market, can fully meet the demands of the feed enterprises in procurement, help draw the feed enterprises to participate in the market and improve the liquidity on the market; in addition, the revised quality standards will come into effect from the C1501 Contract yet to be listed, which has avoided affecting the normal operation of the currently traded contracts and will ensure the stable market operation after the implementation of the new standards.
