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Korea's First Hog Contract Introduced

by 5m Editor
21 July 2008, at 9:43am

SOUTH KOREA - Asia's fourth largest economy, South Korea, has introduced the trading of lean hog futures in the midst of concerns that the first contract may fail to attract investors.

According to Bloomberg, hogs will also be the first agriculture-linked contract offered by Korea Exchange Inc. The bourse, operator of the nation's equities and futures markets, lists stock-based contracts and in 1999 introduced a little-traded gold contract.

"We are a bit skeptical if trading will go okay with enough liquidity because the number of players is limited," C.H. Lee, team leader of retail sales at Woori Futures Co. in Seoul, said before trading began. "You can secure liquidity when even ordinary individuals participate, but they don't seem to be interested and only some livestock people are."

Pork is Korea's second-largest agricultural product by value after rice and the contract offers swine producers and processors a way to manage price risk, the exchange said June 29. Pork-related futures trade in the U.S. and Germany, it said.

Lean hogs for August delivery traded at 3,920 won per kilogram at 11.30 a.m. in Seoul after opening at 3,950 won, according to the exchange. Sixty-six contracts were traded.

"Listing lean hog futures can extend derivatives to general products and make a contribution to the development of capital markets by providing a proper hedging tool for industries other than the financials," the bourse said.

South Korean pork output was valued at 3.6 trillion won ($3.5 billion) in 2006, according to the exchange.

Overseas investors and market analysts expressed doubts about initial contract volumes.

"If you'd have said China, I would think that would be a little more of interest, but Korea," David Bauer, President of Brite Futures Inc. in Milwaukee, said on July 17.

South Korea, which is about 78 percent self-sufficient in pork, consumes 870,000 metric tons of the meat a year, or 18 kilograms per person, the Korean bourse said.

"The outlook is not all that pessimistic because hogs are the single-biggest commodity in Korea in terms of the number of market participants, and there's a need out there for hedging against price fluctuations," Samsung's Yoo said.

View the Bloomberg story by clicking here.

5m Editor