Central People Government of People Re : Farm futures to help real economy

SHANGHAI－Apple farmers in Yijun county of Northwest China's Shaanxi province no longer need to overly worry about drops in apple prices, thanks to financial instruments that they may find difficult to understand.

By paying a small premium, the farmers can receive compensation from insurance companies if the market price falls below a specific amount.

Conversely, insurers can buy financial derivatives on apples from futures companies, hedging their risks if the apple price rises too much.

The 'insurance plus futures' hedging model came as China launched the world's first apple futures in late December, with the aim of stabilizing the earnings of farmers that rely on apple cultivation as a major source of income.

'The purpose of launching apple futures is not merely to have a new product, but to help the real economy,' said Chen Huaping, president of the Zhengzhou Commodity Exchange.

It's not the only innovative products that China has launched on its growing commodity derivatives market. As authorities reiterate the role that financial services should play in the real economy, the futures market is setting a good example, helping farmers mitigate the risks of price volatility.

From apples to eggs, China has futures contracts for many commodities that are not easily found elsewhere.

Futures contracts obligate investors to buy or sell underlying assets at a predetermined price and at a specified time, helping investors hedge against uncertainties.

In the past five years, China launched 27 new futures contracts, accounting for almost half of the 55 contracts that are currently traded.

In April, China launched white sugar options, a derivative of futures, shortly after the launch of soybean meal options. In August, trading of cotton yarn futures started on the Zhengzhou Commodity Exchange.