After the release of the approval of corn starch futures, persons from the industrial circle have been looking forward to this product. Relevant person said in a recent interview that corn starch futures will help corn enterprises, especially the deep processing enterprises, to break through the double dilemma posed by policies and market and to enhance their business initiative, and the forming of the corn futures product chain will further enhance the futures market’s capacity of serving the corn industry.
“Under the background that corn raw materials are greatly regulated and controlled by policies, the listing of corn starch futures product will change the situation that corn deep processing enterprises bemoan in the face of the futures market, and the futures market’s capacity of serving the whole corn industry chain will be significantly enhanced.” said Li Yanbing, an analyst from Xinhu Futures.
In 2013, China’s corn production volume was 218 million tons and the corn deep processing demand was about 50 million tons. However, it is mainly trade companies, purchasing enterprises, and feed-demanding enterprises in the domestic corn industry chain that have participated in corn futures and few corn deep processing enterprises, the major corn demanding side, have participated.
Li Yanbing introduced that China’s corn starch industry has been expanded in recent years and presented the over capacity situation. Frequent and radical fluctuation has been seen in starch prices and enterprises have experienced rather passive operation due to the lack of direct derivatives tools to avoid risks.
COFCO Biochemical Co., Ltd. is one of the important corn deep processing enterprises in China and its subsidiary Huanglong Company has engaged in the corn deep processing field since 1994. However, under the market pattern with great starch price changes, the company has faced great price fluctuation risks along with the expanding of its production scale. “In recent years, corn starch processing enterprises have had a hard time and the industry lacks direct risk-avoiding tools. And the listing of corn starch futures will provide enterprises with risk management tools and pricing tools.” said Zhu Yongsheng, Director Assistant of the Risk Management Division of the Energy Department of COFCO Biochemical. The listing of corn starch futures will deal with the price fluctuation risks faced by such corn deep processing enterprises as COFCO Biochemical, thus assisting them to maintain steady operation.
In recent years, affected by such factors as the temporary purchasing and storage policy, corn deep processing enterprises, feed enterprises, and traders have been pressed in terms of their survival space and the market resources have kept transferring to the state reserve system. As a result, corn’s development space in China’s futures market has been restrained. Meanwhile, there are certain differences between downstream deep processing enterprises’ demand on corn quality and the forage corn and deep processing enterprises hope to launch downstream products in the industry chain to directly manage product risks.
Market participants also raised expectation on guiding industry’s operation order through corn starch futures. Relevant personnel from Shandong Tianli Pharmaceutical Co., Ltd. said that downstream corn consuming enterprises have paid attention to brand and product quality and hope to further guide the product quality improvement by designing corn starch delivery quality standards.
The listing of corn starch futures has improved the corn futures product order of domestic futures market and made corn starch futures the 4th industry chain product system of Dalian Commodity Exchange after oil, synthetic resin, and coke product chains, which will bring great significance to the market’s development and the display of market functions.
According to Li Yanbing, the listing of corn starch futures will, first of all, help to extend the corn industry chain and form an arbitrage combination together with corn futures. As corn accounts for about 80% of the production cost of corn starch, corn starch prices are greatly influenced by corn prices. Relevant enterprises can lock in operational profits by using both corn and corn starch futures at the same time and professional institutional investors can also use the improper price difference between corn and corn starch to conduct arbitrage. Second, it will help to fill in the gap that there is no delivery warehouse for corn futures in North China, thus further enhancing corn industry customers’ hedging convenience. Finally, it will help to expand and deepen the scope of the futures market in serving the corn industry. The corn output is large and its industry chain is relatively long. After the listing of corn starch futures, the products in the corn industry chain will expand from the feed field to other processing fields. In particular, corn starch is in nature a kind of polysaccharide and about 55% of its output is used to produce starch sugar. As the price correlation coefficient of corn starch and white sugar reaches 0.89, the listing of corn starch futures will further expand futures market’s scope of serving the real economy.