Korea Exchange (KRX) will introduce lean hog futures on July 21, 2008. Korea’s lean hog market is the second largest agricultural commodity in terms of output after rice farming. Although lean hog, a non-storable product, could cause highly volatile price due to seasonal demand, diseases and etc., there has been no risk management tool such as agro-livestock insurance.
Hence, to make available an instrument that is appropriate for managing risks associated with price volatility of lean hog for both swine breeders and pork processors and to promote the development and trading of commodity futures, the KRX made the decision to introduce lean hog futures.
Underlying asset of lean hog futures is the benchmark price of lean hog and the trading unit is 1,000kg. 6 consecutive contract months are listed and the cash settlement of T+2 (the third day counting from the trading day) is adopted.
It is expected that with the introduction of lean hog futures, the KRX is able to extend the derivatives product lines to commodities and to streamline the development of capital market by offering a proper hedging tool for industries other than the financials.
To fully test the preparatory arrangements and trading systems of the newly listed futures and to familiarize the investors with the trading methods and regulations, the KRX has been conducting a mock trading since June 30 (to be completed on July 16, 2008). The trading system of lean hog futures will be thoroughly tested and any deficiency will be corrected and improved before launching the product.
The only commodity futures currently listed and traded on the KRX is Gold futures, and lean hog futures would be the second commodity futures to be listed.
