China’s hog futures set to make debut, but faces big challenges

Source: Reuters/Farm Journal’s Pork, 4 August 2020, photo credit: Reuters/Jason Lee

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

The country’s first live-animal physical-delivery contract has been planned for a decade, and is expected to be popular with domestic traders on the Dalian Commodity Exchange (DCE). 

But 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.  

China typically slaughters about 700 million pigs annually and produces more than 50 million tonnes of pork – about half of global output. 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.
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The South African Pork Producers’ Organisation (SAPPO) coordinates industry interventions and collaboratively manages risks in the value chain to enable the sustainability and profitability of pork producers in South Africa.