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On March 14, the last trading day, the egg futures 1403 Contract, the first expiry contract, was smoothly delisted after 85 trading days of steady operation. Similar to the March contracts of other products, as a result of the factors that the basis was reasonable, there was no arbitrage space between the futures and spot goods and it was close to the Spring Festival, all the clients holding positions opted to close the positions in the delivery month, with the physical delivery not realized.
Generally, in nearly 5 months since the listing, the egg futures have seen a sound operation with the transactions and positions increasing steadily. According to statistics, as of March 14, 2014, the egg futures totaled a transaction volume of 8.86 million contracts (bilateral, the same below) with an average daily transaction of 100,000 contracts; the open interest has increased to 120,000 contracts at present from 60,000 contracts during the early period of the listing; the total volume of transaction reached RMB 358.9 billion with a daily average of RMB 4.22 billion. Specifically, the 1403 Contract attained a trading volume of 44,692 contracts with a daily average of 526 contracts and a transaction volume of RMB 1.74 billion with a daily average of RMB 20.47 million.
After the listing, with a benchmark listing price of RMB 4,000 / 500 kg, the dominant 1405 Contract of the egg futures closed at RMB 4,218 / 500 kg on the 14th, up by 5.4%, recording the highest settlement price of RMB 4,214 / 500 kg and the lowest settlement price of RMB 3,682 / 500 kg during the period and reporting the largest volatility range of 14.4%, which indicates steady operation and moderate price volatility on the whole.
Market researchers believed that since the listing of the egg futures, the weather, the avian flu and other factors have dominated the price changes, and the changes of the futures prices have been in line with those of the spot prices on the whole, accurately reflecting the market participants' expectations for the spot market prices in the future.
According to Zhan Xiao, an analyst with Xinhu Futures, as for the dominant contract, the first listing month of the egg futures saw the snows and rains in many areas nationwide, which led to the difficulties in transportation of eggs, and moreover, the falling winter temperatures caused lower laying rates and short supply, which pushed up the spot price. Affected by this, the dominant egg futures 1405 Contract saw the price rise to RMB 4,170 / 500 kg, an increase of 4%; since late December, the human-infected H7N9 epidemic occurred in China with the egg demand shrinking rapidly and the spot market price in decrease for a long time, which has caused the futures price to adjust subsequently as the egg futures price fell gradually to about RMB 3,700 / 500 kg in late February from about RMB 4,100 / 500 kg in the middle of December, a total decrease of 9.7%. Up to now since the Spring Festival, affected by the avian flu and other factors, the breeding stock of the laying hen farming has declined with the falling market supply and the rebounding spot price, and the futures price has climbed gradually along with the spot price. The egg spot price in the main egg production areas of Hebei, Hubei and other main regions with reference prices has risen from the lowest level of RMB 3.2 / 500 g to about RMB 3.9 / 500 g, representing a total increase of RMB 600 / 500 kg; and the price of the egg futures 1405 Contract has grown from RMB 3,630 / 500 kg to the level of RMB 4,250 / 500 kg, a total increase of RMB 620, representing a good synchronization of the futures and spot prices. According to estimates, the correlation coefficient of the egg futures and spot prices has reached above 0.8 recently with the basis increasingly stabilized. Considering the sorting, packaging and other costs of the eggs, the futures prices are at a reasonable level currently.
According to Zhang Xiongjie, an analyst with china-data.com.cn, recently the rapidly picking up egg price has drawn the attention of the market, and the market situation has actually resulted from the impact of the avian flu epidemic last year and the decreasing spot supply. Since the first case of the avian flu appeared on October 8, 2013, the capacity elimination of meat and egg poultry has been accelerated and the price of broiler has been depressed by the avian flu, which has affected the profits of laying hen farming. Since the beginning of 2014, the peak season of replenishing breeding stock of laying chicks, which usually occurs from January to March, has not appeared, and the laying hen farming enterprises have postponed the period for 2 months. The market believed that May and September will see structural short supplies, with which expectations the futures prices see significant increases.
The price trend of the 1403 Contract, which was just delisted, was in line with the situations of the dominant contract and the spot market. In 2014, affected by the avian flu and the falling spot market prices, the settlement price of 1403 Contract once dropped to RMB 3,319 / 500 kg, which was close to the then price offer in the spot market in the benchmark delivery site. Since late February, with the gradually weakening impact of the avian flu, the spot market price has picked up, and the settlement price of 1403 Contract rose to RMB 3,650 / 500 kg at the delisting, which was basically equal to the spot price. Analysts further pointed out that the price of 1403 Contract had gradually drawn closer to the spot market and ultimately in the delivery month the futures and spot prices achieved a smooth merging. The futures price reported a very small gap from the spot price at the delivery site, and there was no space for the futures-spot arbitrage, coupled with the factor that the March contract was next to the Spring Festival, which was the same as the March contracts in domestic futures market seeing little trading and delivery of the contracts. Therefore, both long and short position holders of the egg 1403 Contract finally opted to close out the positions with the physical delivery not achieved.
Zhan said that in the spot market, compared to other agricultural products, the egg is characterized by significant price volatility. In the 5 months since the listing, the price volatility of the egg futures has been in line with the characteristic of the spot price, and the significant price volatility was just the condition and requirement for the introduction of the corresponding futures product. In terms of the trend of the price operation since the listing of the egg futures, it is easy to find that the egg futures prices have not only well reflected the changes of supply and demand in the spot market but also represented the expectations of the market for the trend in the futures, having shown the corresponding function of price discovery.
Zhang said that the listing of the egg futures will undoubtedly bring new opportunities to the development of the egg industry, with the futures to serve as a cardio tonic for the egg industry to speed up the integration and a powerful instrument for the farmers to enhance the capacity for resisting the risks. In the face of the returning of the avian flu, the egg producers, through the previous hedging of selling the futures, can effectively control the losses in the spread of the avian influenza.
Market analysts said that as China's first agricultural futures product of fresh livestock, since the listing the egg futures have withstood the two impacts of the bad weather and the avian flu, with the market running soundly on the whole and showing preliminarily the rational designing of the contract system and the capacity for market regulation. More importantly, in the domestic spot egg market with the prominent regional feature, the egg futures have formed the market prices highlighted by concentration and unification, openness, rapid conducting and predictability. With the futures prices effectively reflecting the spot supply and demand, the interaction of the futures and spot prices gradually enhanced and the industry putting in great concern and reference, the futures prices will further improve the price interaction of the regional spot egg markets, thus showing the positive energy for the development of the egg industry.
As for the opinion in the market that the position limit is too tight for the egg futures, market researchers believed that addressing the speculation, the position limit is aimed to prevent market manipulation and ensure the reasonable and effective prices. For the first fresh livestock futures product, ensuring the sound operation of the egg futures should be the top consideration of the regulators. It is also to meet the demand for the early market cultivation, and the strict position limit has played its role in the smooth operation of the egg futures since its listing. The spot enterprises participating in the hedging find no restriction through application and approval for their position quotas, and therefore their true hedging demand is not affected. Of course, as the market liquidity affects the convenience of hedging to some extent, from the perspective of the long-term development of the market, the egg futures is still in need of continuous cultivation so as to expand the market capacity and improve the capability of the market for bearing and transferring risks.
