By Wang Lan (China Daily)
Updated: 2008-03-04 10:26

Zhengzhou Commodity Exchange (ZCE) has made fundamental changes to the terms of its hard wheat futures contracts to conform to the newly issued national standard for the grain.

The changes, which will take effect from March 24, will include a wider variety of wheat by lowering the benchmark qualification required for delivered wheat in futures trading.

In the past, delivery at the maturity of a contract was limited only to first- and second-grade white winter wheat. The new contract will lower the delivery requirements to include third-grade wheat planted in other seasons.

The terms of outstanding contracts will remain in force until they expire.

The introduction of the new contract terms is widely seen as an important move to include more traders and broaden the scale of the futures market.

Industry analysts said the changes would help simplify the trading process and improve wheat market efficiency by reducing the costs involved in futures delivery.

The new national standard for wheat production, issued in January and effective from May, has removed the long-established system governing classification of wheat by planting seasons. The new system is seen as much more flexible and reflective of the market conditions.

Du Baoquan, chief farm produce analyst at Xiangcai Qinian Futures Co in Shanghai, said: "By reducing the packaging standard for delivered wheat, many more farm traders can participate in the futures market and utilize the hedging tool to minimize risks resulting from wheat price fluctuations."

Wheat prices in both domestic and global markets have been fluctuating widely in the past year. The most actively traded hard wheat futures contract for delivery in September on ZCE has surged an aggregate 7.9 percent in the past month to 1,940 yuan ($272.9) per ton.

Wheat prices in the international market showed an even steeper upward curve, with the most actively traded futures contract for delivery in May on the Chicago Board of Trade (CBOT) soaring a total of 12.9 percent to 1115.4 US cents per bushel. In addition to hard wheat futures contracts, ZCE is also trading strong gluten wheat futures contracts.

Other than helping expand the market scope, the introduction of the new contract would not influence wheat price movements as the demand-supply relation is unchanged.

Liu Xinghua, a farm produce analyst at Great Wall Futures Co in Shanghai, said the adjusted contract would attract many more spot traders into the futures market. "The trading of the new contract is expected to be more active than that of the current contract," said Liu.

The total production of wheat in China reached 106 million tons in 2007, up 1.4 percent from the year before, while the total consumption dropped to 100.5 million tons by 0.4 percent. The world production of wheat totaled 603.5 million tons, up 1.7 percent year-on-year, while the aggregate world consumption reached 603 million tons last year.