China readies live hog futures contract, but several key challenges remain

A report from Reuters has revealed that China’s long-awaited live hog futures contract, which will offer a vital hedging tool for the world’s largest pork industry, which has been decimated by an African swine fever outbreak that devastated herds and sent pork prices soaring, is almost ready.

The country’s first live-animal physical-delivery contract has been planned for a decade, and is expected to be popular with domestic traders.

However, complex delivery logistics, tight quality-control standards, a local lack of experience with futures contracts and a retail trading community that has wildly distorted other markets will be key challenges.

Hog and pork producers have traditionally relied on contracts that define volume and delivery requirements, but have little control over or insight into costs, especially in future months.

Jim Huang, chief executive at China-America Commodity Data Analytics, said the contract is ‘badly needed’ and commented: “The hogs industry is huge, but not strong. When prices go up everybody does well, but when it goes down everybody suffers. This isn’t healthy. You can’t keep up with this forever.”

A launch date is yet to be announced.

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