Pig Price Goes Down: Industry Leader Takes The Lead

Golden ham, located in the downstream of the industrial chain, the price of pig fell, and the cost of raw materials of the company decreased accordingly. Now, after the pig futures market has continued to decline, why companies still need to participate in hedging?

On the evening of January 11, golden ham announced that the board of directors agreed to carry out commodity futures hedging business with its own and self raised funds within the limit of 50 million yuan within one year from the date of deliberation and approval by the board of directors.

In this regard, Wang Qihui, the company's secretary, said on the 12th, "in the long run, if the scale of breeding goes up, the price of pigs will fall accordingly. However, it's hard to say the time and extent of the decline. In addition, the recent rebound in pig prices, considering the unclear short-term price trend and the company's demand for raw materials, we plan to carry out hedging operations. "

In contrast, due to the strong expectation of decline in pig prices in the year, the demand for hedging of pig breeding enterprises in the upper reaches of the industrial chain is stronger.

The reporter of 21st century economic report learned from relevant channels that at present, leading pig enterprises have a high enthusiasm for participation. Regardless of muyuan shares, which had been wantonly "recruiting and buying horses" to set up the futures department, three listed companies, namely Wenshi shares, Zhengbang technology and Tiankang biology, have taken the lead in "testing the water" on the first day of listing.

However, due to the pig futures has just been listed, the relevant listed companies are still in the trial stage, mainly to be familiar with the trading rules and procedures, and "practice".

Downstream wants to take the lead in "buying hedging" hedging

Domestic ham, a Yunnan Xuanwei, another is Zhejiang Jinhua.

Golden character ham, the main product is ham. In 2019, for example, the company's total revenue was 282 million yuan, of which 135 million yuan came from ham. In addition to frozen products, meat products and ham products, about 88% of the revenue was related to pigs.

As the price of pig rises, the cost of the company rises rapidly.

In June 2019, this round of pig cycle started, rapidly rising from 15 yuan / kg to more than 35 yuan. Although the pig price declined in the second quarter of 2020, it still remained around 29 yuan / kg.

Accordingly, in the first half of 2020, the operating cost of "golden ham" rose rapidly to 220 million yuan, while in the same period of 2019, the figure was still no more than 68 million yuan.

At that time, the company adopted the strategy of "using domestic and foreign markets to purchase pork. When the price of pork is low, purchase more when the price is high, so as to smooth the impact of pork price fluctuation."

In the large cycle of rising pig prices, the above strategies can only reduce the company's raw material costs as far as possible. If the market is not judged correctly, you may even buy high price pigs.

On January 8, the pig futures market. On the first working day after the weekend, the golden ham held a board meeting and finally passed the above hedging proposal.

According to the announcement, the maximum amount of margin required for carrying out commodity hedging business of golden ham shall not exceed RMB 50 million (excluding the physical delivery funds of futures subject matter), and it can be recycled within the validity period.

For this reason, golden ham has set up a futures decision-making and trading team. The members of the decision-making group include the chairman, President, vice-president, purchasing director, financial director, internal audit director, etc.

"When you are in the front line, you know the price of pig best. How to trade is handed over to the futures company. They come up with specific trading strategies and plans. Finally, the company's traders place orders for trading, and the risk control management and internal audit posts are responsible for supervision." Wang Qihui said.

He said that the specific operation will be combined with their own business to develop a hedging plan, "will not trade very frequently, only in the need to operate."

It should be pointed out that this is also a common mode adopted by industrial investors, including listed companies, in strict accordance with the operation and hedging plan.

As there is no speculation involved, the risk is relatively controllable.

Assuming that the company needs 100 tons of raw materials in the next month, and the pig price will rise from 30 yuan / kg to 35 yuan / kg, the golden ham can open a position in the futures market at a price of 30 yuan to make six more pig futures.

When the spot price rises to 35 yuan, the company can still buy pigs at this price, and the increased cost of 5 yuan is offset by the profit part of futures hedging.

The only risk is that there may be price difference between futures and spot, which has a certain impact on the overall hedging effect of the company. However, on the whole, there is no doubt that the hedging protection will be stronger than the "hard shouldered" pig price rise, even if the actual operation process only played a part of the hedging effect.

"Large scale intervention" node has not arrived

The lower reaches of the industrial chain want to buy low-cost pigs, and the upstream breeding leader is that the higher the pig price, the better. What should we do? The existence of two-way trading mechanism in futures market can effectively solve this problem.

On January 8, the first day of pig futures listing, the benchmark price of lh2109 contract was 30680 yuan / ton, equivalent to 30.68 yuan / kg. Although it was about 5 yuan / kg lower than the spot market price, it was a good price for breeding enterprises such as muyuan shares.

Taking muyuan shares as an example, the average selling price of pigs of the company fell to 26.2 yuan to 27.65 yuan / kg in May, October and November 2020. In 2021, the pig production capacity will continue to recover, and the relationship between supply and demand will move from tension to balance. The price of pigs will only be lower, and the price of more than 30 yuan may be difficult to reappear.

For example, the lh2109 contract represents the price of pig futures delivered in September this year. On January 8, the settlement price fell to 28290 yuan / ton, and on the 11th, it had fallen to 25795 yuan / ton. The price of about 25 yuan / kg is basically equivalent to the expected price of pigs given by some third-party market research institutions.

If muyuan shares were listed on January 8, and short the pig futures at the benchmark price, the profit of 78000 yuan per hand could be obtained by the 11th to compensate for the loss caused by the decline of spot price of live pigs in the second half of the year.

Although the company has previously issued a "40000 monthly salary" conditions to attract futures talents, the establishment of the futures department, but there is no news of the company's next transaction. On January 8, the reporter also checked with the Secretary of the company, but no reply was received.

In contrast, Wenshi shares and Zhengbang technology, which are the top four sales volume leaders in the industry, have tried to participate in the first day of pig futures listing.

"After the opening of pig futures on that day, the company tried to participate in pig futures trading to familiarize ourselves with the rules of futures trading." Yan Shufen, general manager of the marketing department of Wenshi group's No.1 pig industry, said.

It should be pointed out that due to the short listing time of pig futures, all listed companies are still familiar with trading rules and procedures, which are more "hands-on".

Wang Qihui also expressed a similar point of view, "don't worry, do it slowly, the whole team of the company is also familiar with, accumulate some experience."

Therefore, for super large enterprises, pig futures can not play a more obvious hedging effect, which is restricted by many aspects.

First of all, the latest position data of pig futures is 20569, equivalent to 329000 tons of live pigs. In 2020, the average sales volume of Wen's shares is nearly 800000. According to the weight estimation of 110 kg standard, the sales volume of pigs in a single month has reached 88000 tons.

Therefore, at this stage, the market capacity of aquaculture enterprises, especially the industry leaders, participating in hedging transaction is not enough to support.

Secondly, at the initial stage of new varieties listing in the futures market, the participation of various types of participants is not sufficient and balanced, the absorption and reflection of information in the market is not enough, and the price fluctuation is usually violent, so the price discovery mechanism needs a gradual calibration process.

Because of this, the listed companies mainly participate in pig futures mainly by trial trading and wait-and-see attitude, far from reaching the node of large-scale participation of industrial investors in pig futures.

In addition to the above "hardware" conditions, industrial investors' cognition and acceptance of derivatives market and other "soft" indicators also affect the maturity speed of future pig futures and the hedging efficiency of relevant listed companies.

When pigs fall below 20 yuan / kg or return to the break even line in the first half of 2019, the enthusiasm of upstream breeding leaders will be significantly stimulated.

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