Corn starch futures support the steady development of the industry

Based on the industry foundation of being the world's largest producer and seller of corn starch, Dashang Exchange launched the world's only corn starch futures variety along the corn deep processing industry chain in 2014. Subsequently, corn and corn starch options were listed in 2019 and 2024, forming a relatively complete tool and service system, providing diversified and refined choices for industrial customers' trade pricing and risk management. Starting from today, this newspaper will launch a series of reports titled "Ten Years of Development with Flourishing Branches and Leaves, Corn Starch Futures Protecting Enterprises from Wind and Rain", reviewing the development process of corn starch futures since its listing. Please stay tuned.

Turning back time to ten years ago, the corn deep processing industry entered a stage of rapid development, and under fierce competition, enterprise profits and operating rates could not be guaranteed. The corn deep processing industry urgently needs futures tools to manage market risks and improve operational levels. On December 19, 2014, the Dalian Commodity Exchange officially listed and traded corn starch futures. Over the past decade, with the development of the corn deep processing industry, corn starch futures have continued to shine and contribute to the steady development of the industry.

Shining debut to safeguard the steady growth of the industry

In 2013, China's corn starch production reached 21.96 million tons. In the previous decade, China's corn starch production increased by about 170%, with an average annual compound growth rate of about 10.4%. Accompanying the continuous growth of supply is the fluctuation and decline in the operating rate of China's corn starch industry. In 2001, the operating rate of China's corn starch industry reached 71%, dropped to 59% in 2012, and rebounded to around 65% in 2013.

The reporter learned that at that time, the corn deep processing industry was facing development challenges such as high raw material prices, low product prices, and competition for substitutes. Enterprises urgently needed futures tools for risk management. According to statistics from the National Grain Trading Center, the entire corn starch industry experienced nearly three years of losses from April 2011 to March 2014. In this context, the listing of corn starch futures on the Dalian Commodity Exchange in 2014 was timely, and it is also the only corn starch futures variety in the world.

Since the listing of corn starch futures, Yihai Kerry Golden Dragon Fish Food Group Co., Ltd. (hereinafter referred to as Yihai Kerry) has actively participated in it. The relevant person in charge of Yihai Kerry stated that the listing of corn starch futures is of great help to enterprises. The characteristic of Northeast corn is "one season per year, one season for the whole year", but product sales are conducted throughout the year. Previously, in order to prevent losses caused by significant fluctuations in corn starch in the future, orders for the next month were usually signed at the end of the month. Since the introduction of corn starch futures, we can sign contracts with customers for three or even five months, and then hedge our spot positions on the market synchronously, effectively avoiding future price volatility risks while achieving forward sales

Fan Wenliang, Assistant General Manager of Shandong Shouguang Juneng Golden Corn Development Co., Ltd., stated that the listing of corn starch futures provides tools and opportunities for starch factories in North China. In his opinion, frequent price fluctuations are not conducive to business operations. Enterprises can use corn starch futures to hedge the risk of product price drops, lock in sales revenue, optimize sales plans, expand sales channels, and achieve stable operations.

In the past decade since its listing, the corn starch futures market has maintained stable operation and continued to grow in scale. According to statistics, the annual average daily trading volume and open interest have increased from 8000 lots (unilateral, the same below) and 5300 lots in the early stage of listing to 147300 lots and 246400 lots in 2024 (as of the end of November), respectively, an increase of 17 times and 45 times, and the risk bearing capacity continues to strengthen.

Since its listing, corn starch futures have performed well in terms of functionality. Since the beginning of this year, the correlation between futures and spot prices has been over 90%, and the hedging efficiency of futures has been over 80%. It is also closely linked to corn futures prices, and its functions such as price discovery and risk management have been effectively utilized. The enthusiasm of enterprises to participate has steadily increased. According to statistics, in 2023, the average daily trading volume of corn starch futures unit customers will reach 57.55%, and the average daily holding volume will reach 70.33%. Industrial customers are mainly production-oriented enterprises, and the total production capacity of corn deep processing enterprises that have participated in the futures market is close to 80% of the total national production capacity. A group of industry leaders actively ensure the stable operation of spot trade through futures trading and delivery.

Market insiders told reporters that under the escort of corn starch futures, China has not only become the world's largest producer and seller of corn starch, but the industry has also become more stable on the path of large-scale and intensive development. From 2014 to 2023, the production capacity and output of commodity corn starch in China have both increased by about 60%, and the industry scale has grown. The number of enterprises with an annual output of one million tons has increased from 4 to 13.

Keeping up with spot goods to ensure efficient and convenient participation of enterprises

With the changes in the spot industry, in order to maintain the vitality of corn starch futures, Dalian Commodity Exchange has always kept up with the development of the spot market, benchmarked the mainstream quality and trade habits of spot, adjusted contract rules in a timely manner, improved delivery convenience, and provided guarantees for industrial enterprises to make good use of corn starch futures.

The reporter learned that for corn starch futures, the Dalian Commodity Exchange has carried out three basic maintenance work: firstly, based on the changes in spot price differences between regions, it regularly evaluates the location premium setting and adjusts it twice to make the location premium continuously close to the actual spot price. The second is to track the growth of the spot market scale, increase the available delivery resources, expand from the initial 6 factories and 1 warehouse to 19 factories and 2 warehouses, and increase the maximum warehouse receipt quantity from the initial 42000 tons to 500000 tons, in order to better meet the delivery needs of industrial enterprises. The third is to benchmark against national standards and mainstream spot quality, modify the delivery quality standards, and adjust the lead indicator content from ≤ 1.0mg/kg to ≤ 0.2mg/kg starting from the CS2001 contract, and adjust the overflow and shortage of 40kg packaging from ± 0.5kg to ± 0.4kg. After adjustment, the quality standards and rules for corn starch delivery are more in line with the spot market situation and relevant national regulations. The new delivery quality standards are closer to the mainstream quality of spot goods, and the delivery volume of corn starch has significantly increased. The average annual delivery volume from 2020 to 2024 is 26800 lots, which is more than four times the average annual delivery volume before 2020.

In recent years, Dalian Commodity Exchange has adhered to the principle of "one product, one policy" and has also attempted to introduce a container inspection free delivery system for corn starch futures. This has reduced the cost of warehouse delivery by about 40 yuan/ton, shortened the delivery time, and improved the activity and convenience of warehouse delivery. In addition, the optimization of corn starch packaging specifications in November this year has also been widely welcomed by the industry.

The reporter learned that during the initial listing of corn starch futures, in order to cater to different packaging specifications in the market, it was stipulated that the delivery product packaging could be one large and one small. With the increasing concentration of the corn starch industry, mainstream packaging specifications have undergone significant changes, and the proportion of large packaging continues to increase. In addition, different packaging of corn starch is difficult to be compatible during transportation and downstream processing feeding, and it is imperative to improve the adaptability of packaging specifications.

In this context, Da Shang conducted thorough research and demonstration on the market, and finally determined the plan. The revised delivery quality standards no longer limit the packaging specifications of the delivery products to 40kg or 830kg, but can be negotiated between the factory warehouse and the delivery party. If the negotiation fails, the delivery party can choose from 1-3 bottom packaging specifications provided by the factory warehouse. It is reported that although there are various packaging specifications in the spot circulation of corn starch, the three major packaging specifications of 830kg, 850kg, and 1000kg are the mainstream packaging specifications. Therefore, considering downstream transportation and use, at least one should be filled in the factory warehouse for 830kg and 850kg packaging, and 1000kg packaging can choose whether to fill in or not. The optimized rules were released to the market in November this year and have been implemented on newly registered warehouse receipts since December.

Zhao Song, Assistant General Manager of Weifang Shengtai Pharmaceutical Co., Ltd., told reporters that in recent years, the modification of corn starch delivery standards by major trading firms has improved the smoothness of delivery and the convenience of industry participation. In particular, the diversified and negotiable packaging specifications and delivery methods provide buyers with more choices, while also giving them the expectation of receiving large packaging, solving the problems caused by previous mismatched packaging sizes, and better meeting customer needs. Logistics costs are also more controllable. This helps to strengthen trade between regions, enhance market activity, and promote healthy market development.

With the changes in the market, Dalian Commodity Exchange has made a series of adjustments to the delivery center, making it more in line with the mainstream specifications of the spot market and closer to the needs of production enterprises and end customers. These measures are very down-to-earth, "said Xu Shukang, Deputy General Manager of Shandong Zhonggu Starch Sugar Co., Ltd.

Looking at the development of the corn deep processing industry, with the increasing living standards of residents, the demand for corn starch is becoming more diversified and refined. Faced with the vast market prospects, corn deep processing enterprises not only need to seize opportunities, improve production technology, but also be alert to potential risks, control the impact of product price fluctuations on profits, and enhance their management capabilities. Corn starch futures, as an important helper for enterprises, have steadily increased in market size and operational quality and efficiency since their listing ten years ago, injecting vitality into the long-term development of China's corn starch industry.