context: Policymakers are keen to develop robust futures and options markets as a means of price formation and prediction, and to hedge risk for farmers, processors and ag insurance providers. As efforts to expand and diversify coverage models continue, newly launched options will provide another risk mitigation tool for insurers covering these crop categories.

Options trading for corn, cotton, and natural rubber were launched on the Dalian Commodity Exchange (DCE), Zhengzhou Commodity Exchange (ZCE) and Shanghai Futures Exchange (SFE) on 28 Jan 2019, reports Farmer’s Daily.

Yan Shaoming 严绍明 China Securities Regulatory Commission (CSRC) Futures Regulations Department vice director says corn options will provide more precise risk management tools to companies involved in the corn value chain, as well as supporting ‘ag insurance + futures’ models. Li Zhengqiang 李正强 DCE Party committee secretary also highlights the role of corn options on the corn derivatives market.

Corn futures trading was active on the first day of the launch, says the piece, suggesting the long history and high volume of trading on the corn spot and futures markets ensured smooth operation.

Luo Hongsheng 罗红生, CSRC Futures Department director says the move is designed to support reform of the target price system for cotton as state support shifts towards the ‘insurance + futures’ model.

Chen Huaping 陈华平 ZCE president says the new cotton options as well as recent internationalisation of the purified terephthalic acid (PTA) futures market positions ZCE to be a global hub for textile product derivatives.

Cheng Xin 程莘 CSRC Futures Regulations Department vice director says natural rubber options will greatly reduce the costs of ‘ag insurance + futures’ pilot efforts, supporting poverty alleviation.

Per the piece, the three exchanges have established mutual recognition of eligible investors and all have adopted the American options style.