Corn futures started trading on the Dalian Commodity Exchange yesterday, with most contracts falling on the first trading day under pressure from harvest expectations.

Five out of six corn contracts fell yesterday, except the most active January contract, which gained 11 yuan (US$1.3) to close at 1,191 yuan (US$143.8) per ton.

Corn transactions totalled 327,500 lots during the day, with a combined value of 3.95 billion yuan (US$477 million).

Analysts said that both the United States and China are expecting a good corn harvest. Moreover, a planned government auction of corn stocks later this week also put more pressure on the market.

Corn futures, the third new futures product listed in China this year, is a long-expected new member of the food futures family in the country.

It is also a reflection of the recovery of the country's futures market, which has hardly seen any new product over the past seven years until this year.

Shang Fulin, chairman of the China Securities Regulatory Commission, the securities and futures watchdog, said that the introduction of corn futures has a deep impact on grain circulation system reform and the stability of the overall grain market in China.

The commission gave approval to corn futures at the Dalian exchange in August.

Earlier this year, it had given the green light to Shanghai and Zhengzhou commodity exchanges to list fuel oil and cotton futures respectively.

The world's second biggest corn consumer, China, has an annual corn output of 120 million tons.

The demand for a risk hedging and price-discovering tool in the sector has therefore been increasing rapidly, especially after China began reform on the grain circulation scheme to make grain production and prices more market-oriented, Shang said at the ceremony for the debut of corn futures yesterday in Dalian, a port city of Northeast China's Liaoning Province.

He also said that it would take some time for the corn futures market to become more stable and standardized, given the big quantity and transaction of the product.

Shang urged the exchange and market participants to respect market rules and place emphasis on risk control to nurture a good environment for the market.

Corn futures are expected to directly benefit around 500 million farmers in China and many corn trade companies, manufacturers and distributors, analysts said.

It offers a risk hedging tool for food companies and also enhances their competitiveness in overseas markets, said Liu Luxian, general manager of Jiliang Group, a major foodstuff trade and futures company in Northeast China's Jilin Province, the biggest corn production base in China.

Jiliang will take part in the corn futures business actively and work together with all participants to build a healthy market, he said.

Li Xigui, a researcher with the China National Grain & Oils Information Centre, estimated the 2004 domestic corn harvest to be around 122.7 million tons, up 5.93 per cent from 2003.

More optimistic predictions of other agencies have put the figure at between 123 to 125 million tons.

The harvest growth is expected to continue in 2005. But as consumption of corn also grows rapidly, there will be a continuous shortage of supply, Li said.

Meanwhile, the United States is also expecting a more than 8 per cent increase in its corn harvest in 2004. Therefore, international corn prices have been declining from a high point.

And a sharp decline in corn exports and expectations of stock auctions also further weighed down corn prices in the domestic market since the beginning of the summer.

Li estimated domestic corn prices to rebound in the second and third quarters of 2005, with the decline of corn stocks and a steady increase in demand.

(China Daily September 23, 2004)