China started the trading of early rice futures contracts in the Zhengzhou Commodity Exchange at 9 a.m., April 20, with September contract ER909 opening 110 yuan (US$16.11) higher at 2050 yuan (US$300.15) per ton.

At one point the price shot up to 2071 yuan (US$303.22) 10 minutes after opening, but stabilized around its starting price during the rest of the day and eventually concluded its debut at 2038 yuan (US$298.39). In the following days, the price didn't fluctuate too much either. And the first week was as uneventful as the first day.

Debut of rice futures forecasts 'Chinese price' [CFP]

An uneventful week

"There must have been a lot of minor speculation this week, judging from the market trend. More institutional clients are waiting for better opportunities rather than participating in the transactions," said an anonymous trading analyst.

Fu Shengting, R&D Manager of Founder Futures warns of the potential risk in blind speculation, and advises investors to develop a full understanding of the market and related policies before making their investments. And for rice companies, Fu suggests they become involved in the futures business gradually.

The early rice futures price is slightly higher than that of spot goods, which stands at 1900 yuan (US$278.18) per ton. And the country's policy of protecting farmers' interests is expected to lift the early rice spot goods price, which is likely to climb further to 2000 yuan (US$292.86) per ton.

However, Analyst Ma Yong with Yongan Futures in Zhejiang Province thinks otherwise. He believes the reduced purchase volume of rice in the south will dampen market demand, which will in turn affect the upward trend of the futures price.

Furthermore, the ongoing global financial crisis has returned more migrant workers to their hometowns, so that an increase in the acreage of rice planting is expected this year. Meanwhile, residents' daily spending and industrial consumption are both stable. The recent drop in hog prices is likely to lead to another cut in market demand for rice.

"The bottom line price for farmers' compulsory contributions and the moderately robust price of early rice spot goods are both guarantees for early rice futures earnings, though the price will continue to fluctuate in the short term," another analyst claims.

With the government's guideline price, early rice is unlikely to experience any drastic price drop, as Feng Xiaojian, president of ex-grain.cn indicates, but increased production will also check any rapid price rises.