How should we rationally view the relationship between egg futures and spot prices?
Since entering April, the egg futures price on the Dalian Commodity Exchange has shown a trend diverging from the spot price. The main contract 1609 once reached 4,300 yuan/500 kg in mid-April, then fell back to 3,800 yuan/500 kg, and in recent days once again broke through 4,000. Meanwhile, the spot egg price has been declining because feed ingredient prices fell at the beginning of this year and laying hen restocking increased since March. This situation has aroused widespread attention from all parties in the market. Is the price gap between egg futures and spot prices actually within a reasonable range? Market participants believe that egg futures prices reflect seasonal characteristics and are consistent with the price change trends of previous years. As a standardized forward contract, futures reflect future price expectations, so using the current spot price compared with the September futures contract price to measure hedging effectiveness is unreasonable.
Why is it said that egg price fluctuations are within a reasonable expected range? Because egg prices have distinct seasonal characteristics. Looking at the past full-year egg price trends, the September egg price has consistently been the high point of the year. This is because under high-temperature weather, egg production declines, and eggs are difficult to store, inventory levels are low, and supply is restricted. On the consumption side, as the Mid-Autumn Festival and the school opening season approach, concentrated consumption increases. According to statistics from the past 4 years, the price gap between the June low point and the September high point of spot egg prices ranged from 1.19 yuan to 1.5 yuan per jin. At present, the spot egg price in Shandong, Henan and other places is 2.8 yuan/jin. Based on the closing price of the main egg contract 1609 on the 15th at 3.85 yuan/jin, the spot price is 1.05 yuan/jin lower than the futures price, basically within the reasonable price gap range. At the same time, the price gap between this price and the egg delivery month contract 1606 is 0.4 yuan/jin, which is equivalent to the delivery cost, indicating good price convergence.
The egg futures contracts 1606 and 1609 respectively reflect the market's expectations for spot prices in June and September 2016. Their price trends reflect different market supply and demand relationships, with no obvious correlation. The spot stocking period for the egg contract delivered in September is usually after mid-to-late August, so it is difficult to conduct futures-spot arbitrage operations in the current June. Therefore, using the current spot price compared with the September contract price to measure hedging effectiveness is unreasonable. Investor Zhang Shukun said that due to high temperatures in July and August, the Haugh unit, which measures egg freshness, declines very quickly, and current-period eggs are generally sold quickly. By September, the egg market may experience a tight supply-demand balance. The September contract in the egg futures market maintaining a relatively high premium is also a manifestation of the futures market's price discovery function.
It is reported that the egg futures 1703 contract will adopt a new delivery system. The new delivery system has three main features: First, by capturing the characteristics of each stage of egg production, sales and storage, it introduces a full-month daily selective delivery system and adds a truck-board delivery method, so industrial customers can conveniently propose delivery at any time, which will greatly increase the deliverable volume of eggs and reduce egg delivery costs. Second, it shortens the validity period of warehouse receipts to meet buyers' demand for cargo freshness to the greatest extent. Third, on the basis of the existing 10 contract months, it adds July and August contracts to further ensure contract continuity and better meet customers' hedging needs. At the same time, the epidemic handling process has been optimized. The Dalian Commodity Exchange is stepping up the development and testing work for the modification of contract rules.