June 12, 2018 / 2:56 AM / in 4 months

Chinese regulator approves launch of corn, cotton options: exchanges

BEIJING (Reuters) - China has approved the launch of corn and cotton options, two of the country’s commodity exchanges said, as it expands the range of tools available to hedge against price-swings in agricultural markets.

China launched soymeal and sugar options earlier this year, the first agricultural derivatives products in the world’s biggest commodity market.

It is not clear when the new products will be launched, but approval by the China Securities Regulatory Commission is a first step to making them available for trading.

“This will ... provide more abundant and flexible risk management tools and trading strategies for upstream and downstream entities in corn and related industries,” the Dalian Commodity Exchange said in an emailed statement.

Options give the holder the right to buy or sell a commodity at a particular strike price and are widely used in Europe and the United States by investors across commodities.

China is the world’s second-largest consumer of corn, and corn futures on Dalian are the country’s second-largest agricultural product derivative market by volume.

The bourse added that hedging needs have increased following recent policy reforms that have seen Beijing abandon state stockpiling of the grain and allow the market to play a bigger role.

The news comes amid heightened volatility in cotton futures, which have rallied 18 percent from early April to the end of May, fueled in part by worries over crop damage from strong rains, as well as by heavy speculation.

Options will help medium- and smaller-sized traders and processors of cotton, which face high costs and have low capabilities for handling risk, the Zhengzhou Commodity Exchange said in a statement.

Reporting by Dominique Patton; Editing by Joseph Radford

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