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On December 2, Dalian Commodity Exchange (DCE) issued the "Notice on Dalian Commodity Exchange Cooperating with China Agri-Industries Holdings Limited and Cargill Investment (China) Co., Ltd. in Piloting the Intra-group Factory Warehouse Receipts Swap Business for the Soybean Meal Futures” (hereinafter referred to as the "Notice"), and China Agri-Industries Holdings Limited and Cargill Investment (China) Co., Ltd. (hereinafter referred to as the "pilot groups") cooperating with DCE in piloting the warehouse receipts swap business shows a new way piloted on the soybean meal futures product to solve the frequent problem of uncertain delivery sites for the buyers in delivery on the domestic futures market.
According to the Notice, the clients buying the soybean meal standard warehouse receipts of the factory warehouses affiliated to the pilot groups on the last delivery day may apply for picking up the spot goods at other factory warehouses of the group (referred to as "warehouse receipts for spot goods") or swapping for the standard warehouse receipts of the group's other factory warehouses (referred to as "warehouse receipts for warehouse receipts"). The Notice requires that within the period of validity of a warehouse receipt stipulated by DCE, the swap limit of a single delivery factory warehouse is 20% of the maximum amount of the delivery factory warehouse’s standard warehouse receipt that can be registered, and the specific swap limits should be announced through DCE. The warehouse receipts swap fees include the three parts of the futures premiums and discounts, the spreads of the swap and the costs for adjusting the production plans at the warehouses of the warehouse receipts swap. The term of the warehouse receipts swap pilot is from the date of the Notice issuance to May 30, 2014.
According to the sources, in the course of specific operations, the clients may submit the swap application through members after the delivery, and in accordance with the principle of priority for non-factory-warehouse clients and time priority announced in the Notice on piloting, DCE shall rank the swap applications and then inform the clients and the pilot groups who are to negotiate.
Market participants said that with the rapid development in recent years, the soybean meal futures have become a mature product on the market, but restricted by distribution pattern of squeezing and consumption, the clients with the actual demand for taking the delivery such as the feed companies are still in the face of the trouble in the uncertain sites of taking the goods, which has affected the feed enterprises’ enthusiasm for participating in the hedging of the soybean meal. The initiative of warehouse receipts swap will effectively resolve the problem.
Shi Yan, deputy director of the research institute of Xinhu Futures, said that the innovation is of great significance though with simple forms. The introduction of the business will significantly reduce the delivery costs for the buying clients such as the feed enterprises, not only benefiting the feed enterprises but also helping improve the overall level of risk management of the feed and breeding industry. On the part of DCE, it is a new initiative in effectively serving the real economy and maintaining the existing products in finer and more detailed aspects; for the whole futures market, DCE’s warehouse receipts swap will effectively solve the problem of “scattering” in locations through the “gathering” of the subjects of factory delivery warehouses, which will facilitate the transformation from the delivery at spots to in a range on the soybean meal futures market – the way of “scattering on the surface while gathering in fact” will effectively solve the problem of uncertain sites for the buyers picking up the goods caused by the delivery at multiple sites, playing a good role in demonstrating for other products and serving as a major innovation in the futures market serving the real economy.
According to DCE, to successfully introduce the program, in a period of more than half a year DCE conducted survey and research at enterprises and extensively solicited suggestions from all market participants, and successfully carried out a test for the intra-group factory warehouse receipts swap after the delivery of the Soybean Meal 1309 Contract, effectively verifying the operability of the entire process. Li Weiwei with Hubei Xiangda Farming Co., Ltd. participating in the test of the swap business said that Xiangda Farming received the warehouse receipts of COFCO at Xinsha, Guangdong Province, through the delivery of the Soybean Meal 1309 Contract. As the company is located in Hubei Province, there will be high costs for taking the delivery in Guangdong. Through the swap, the company was able to pick up the goods at Donghai Grains and Oils located in Jiangsu Province, thus reducing the costs. Li said that with simple and convenient operations, the warehouse receipts swap facilitates the participation of the buying clients in delivery and consolidates the company’s confidence in participating in the hedging trading of the soybean meal.
A DCE official said that after the introduction of the pilot business of warehouse receipts swap, DCE will also research and launch the “three-step delivery mode” featuring the buyers’ options for the willingness in warehouse receipt delivery. The integration of the two modes will further improve the convenience for the feed companies in participating in the futures delivery and enhance the effect of the feed companies participating in the hedging.
