Dalian exchange hatches egg futures contracts

The Dalian Commodity Exchange began trading the nation's first egg futures on Friday, which analysts say will help iron out the volatile egg price to benefit both producers and consumers.

Lot size is set at 5 metric tons, with a minimum price movement of 1 yuan ($0.164) per 500 kilograms. Contracts are available every month, and physical delivery is required. Trading margin is 8 percent of contract value, while daily price movement is limited to 4 percent.

"Egg futures will help mitigate price risks for the breeding industry and will have a significant impact on promoting the healthy development of the industry," said Liu Xingqing, head of the Dalian Commodity Exchange.

Li Qingyi, executive vice-general manager of Hubei Shendan Healthy Food Co Ltd, said his company will benefit greatly from the new futures contract.

Shendan is the nation's biggest egg producer with 100,000 tons of annual capacity. It supplies more than 10,000 markets nationwide.

"We expect prices to be smoother after the launch of the futures. And we can also see where the price of eggs will go and adjust our production accordingly," Liu said.

He added that the new futures contracts also will help set industry standards, such as color, size and weight. That, in turn, will help industry development.

Egg prices went through a volatile patch last year and rendered losses for many producers. Starting May 2012, egg prices soared in many major cities. In some places, the price of an egg went up 0.1 yuan a day and didn't go down until October.

The price of eggs went up so fast that some jokingly called them "rocket eggs". Under normal conditions, egg prices are hiked only at major holidays as consumption increases.

"I don't think the same scenario will happen again with the new futures contract," said Liu.

According to the Dalian Commodity Exchange, China has 1.5 billion laying hens in stock. The industry has an annual capacity of 30 million tons and employs more than 10 million people.

The industry's total value exceeds 350 billion yuan. Yu Yuan, a manager of the agriculture commodity department at the Dalian Commodity Exchange, said the egg futures are the first in a line of livestock futures the exchange plans to introduce.

"From a technical point of view, if we did well with the egg futures, it will make other livestock futures easier," said Yu.

Yu said the exchange has organized more than 20 promotion campaigns for egg futures this year, and the responses have been positive. He added that there is a learning curve for egg producers, especially smaller ones but that the idea of risk management can be promoted over time.