On December 19, the corn starch futures were officially listed and traded on Dalian commodity exchange (DCE), and the first listing day recorded brisk trading of the futures with the trading volume reaching 17,121 contracts (unilaterally, the same below), the turnover amounting to RMB 482 million and the open interests standing at 3,620 contracts. According to the participants in the corn deep-processing industry observing the trading on the scene, the corn starch futures showed rational performance and moderate liquidity, which met the market expectations, and the future development is promising.
A total of 5 Contracts of the corn starch futures were offered on the first listing day, with the pattern of “stronger far months than near ones” shown. At the closing, the dominant Contract 1505 recorded a trading volume of 14,562 contracts and fell by 0.25% to RMB 2,793 / ton.
“The performance of the corn starch futures on the first listing day fully demonstrated that the market participants have thoroughly analyzed the fundamentals of starch and the rules for futures trading, and the operation was rational and prudent on the whole,” said Shi Yan, deputy director of the research center of Xinhu Futures. He believed that the listing price of RMB 2,800 set by DCE was appropriate as with the price at the level, the enterprises in Northeast China are slightly profitable and those in North China are unprofitable in delivery. In addition, the price differences between the months fully reflect the seasonal rules as well as the expectations for the policy-based corn market.
As a downstream product of corn, the corn starch is highly correlated to the corn in price, and the cross-product and cross-contract hedging and arbitrage between the two products is one of significant aspects of investment value. Therefore, the investors were concerned about the good opportunities in arbitrage on the first listing day of the corn starch futures.
The corn price accounts for more than 70% of the cost for corn starch, so we can estimate the price differences of the corn starch futures by referring to the price differences of the corn futures in quotation. According to the performance on the first listing day, the premium of corn starch for September as against May is reasonable,” said Liu Guoliang, a researcher with SDIC CGOG Futures.
Liu said that as some starch producers plan to increase the operating rate before next May, it is widely believed in the market that the 1505 Contract will go weak in the future, and according to the rule of seasonal demand for the corn starch, September will see stronger demand than May. Therefore, the performance of the corn starch futures on the first listing day basically reflected the market expectations for the fundamentals.
The market participants are generally optimistic about the prospects for the future development of the corn starch futures. Shi said that the three main characteristics of the corn starch futures are the natural advantages for the brisk trading in the future: first, the corn starch futures have the characteristic of corn of North China and can be used as a hedging instrument for the corn of North China to some extent in a certain period of time. North China is the largest production region for the corn starch, taking about 60% of the domestic production capacity and 20% of the domestic consumption. The fluctuations of corn starch prices are highly correlated to those of the prices of corn produced in North China. Master the seasonal rule and make use of the same directions in some periods, we will be able to conduct hedging for corn of North China through the starch futures. Second, the corn starch futures have the characteristic of the industrial products of agricultural products with the volatility higher than that of the corn futures. The starch is widely used in pharmacy, papermaking, brewing and other fields of production and mixed processing of industrial products, and is more sensitive to levels of investment and consumption boom. The starch supply is closely related to the overall operating rate of the industry and is more reactive to the changes of the industrial capitals. In general, the flexibility of consumption and supply is higher than that of grains. Third, the corn starch futures feature weak policy influence. Currently the state policy interference is mainly found in the major grains, and the corn deep-processing enterprises have the impact of policy interference from time to time, but on the whole the interference is indirect and weak, with no policy interference for downstream processed products. Most of the products fluctuating freely without policy interference among the domestic agricultural futures are brisker, which points to a relatively sound environment for the corn starch futures.
“The product has a variety of topics for hype such as the adjustment of the national import and export policies, the industrial restructuring and the withdrawal of industrial capitals, all of which are effective catalysts to trigger the increases in the volatility of the starch,” said Shi.
It is learnt that the development of the starch industry in China is at the primary level, and once the development is deepened to the downstream sectors just as in the United States, it will renew the industrial pattern and bring new market demands. Sun Mingdao, Secretary-General of China Starch Industry Association, said at the “Forum on Corn Starch Futures Serving Real Economy” that the listing of the corn starch futures is of great significance for guiding the scale development of the corn processing industry and effectively promoting the overall industrial restructuring. Therefore, the market participants welcome the product with sufficient topics for volatility, which will attract the market attention and boost the full functioning of the product.