It is rare for the three staple grains to fall together and derivatives break the agricultural mystery.

"if you control oil, you control all countries; if you control food, you control everyone." As former US Secretary of State Henry Kissinger said, food security is vital to a country.

At the fourth risk Management and Agricultural Development Forum jointly sponsored by the Ministry of Agriculture and the Securities Regulatory Commission a few days ago, experts pointed out that the sharp fall in corn prices not seen in 15 years has led to a rare across-the-board decline in the three staple grains, and the market fluctuations and even panic since the beginning of this year have sounded the alarm to China's food security. At present, the predicament faced by the grain market affects the vital interests of the broad masses of farmers. although China's total grain output has "increased in a row", behind the abundance, the risk seems to have gradually become a "near worry".

The agricultural predicament needs to be solved urgently when the staple grain fell unexpectedly

A reporter from the China Securities News combed and found that the key point of the change in grain prices was September 18, 2015. At that time, the National Development and Reform Commission, the Grain Bureau, the Ministry of Finance and the Agricultural Development Bank jointly issued a paper to announce this year's corn collection and storage prices. Among them, the listing purchase price is 1 yuan per jin, which is 10.7% lower than last year's average price of 1.12 yuan per jin.

For this unexpected change, the commodity futures market first reacted. On the same day, corn futures prices fell 3.64% (the limit is 4%), positions increased by 320000 hands, accounting for 24% of the original proportion, that is, 500 million yuan of funds entered the corn futures market on the same day.

On the spot side, after the state announced the temporary storage price of corn in northeast China, the purchase price of corn in Henan, Shandong, Jiangsu, Anhui and other places fell rapidly, down more than 20% from the same period last year, a decline that has not occurred since 2000.

Affected by the fall in corn prices, the prices of rice and wheat fell in tandem. In early October, wheat prices in Shandong and Hebei fell rapidly, hitting a six-month low, and even there was a certain degree of market panic, which was not seen in many years.

"there are two unexpected falls in food prices this time. The first unexpected thing is that the price adjustment was originally aimed at corn collection and storage in Northeast China, and the price was reduced by 12 cents, but unexpectedly, corn prices in North China and Huang-Huai-Hai region fell by more than 20%. The second unexpected thing was that the price of corn was originally adjusted, but after a long period of trouble, wheat experienced a 'cliff drop' in a short period of time. " Talking about the recent fluctuations in grain prices, industry insiders told the China Securities News.

If the essence of risk is "uncertainty", then these two "unexpected" reflect the huge risks faced by China's agricultural industry from one aspect.

Talking about the risks and problems facing China's agriculture, Li Huatian, deputy general manager of the second customer Department of the Agricultural Development Bank of China, pointed out that the first is the shortage of resources. There is little cultivated land per capita in China, and the area of cultivated land per capita is only 1.3mu, which is 1/4 of the world average.

The second is the deterioration of ecological environment. Soil erosion and desertification are serious in China every year, and the land loss caused by the process of urbanization can reach the area of a medium county. At the same time, the excessive use of chemical fertilizers and pesticides destroyed the ecological environment and seriously affected agricultural production.

The third is the acceleration of the transfer of rural labor. A large number of rural labor force has been transferred, the quality of agricultural labor force has declined, and the problems of aging labor force and rural hollowing out have become increasingly prominent. Who will farm and how to farm has become a key issue.

Fourth, the production efficiency is low. The production efficiency of China's agriculture is equivalent to 30% of the global average, and the contribution of science and technology to agriculture is lower than the world average.

The fifth is the lack of international competitiveness. The market of agricultural products in China is lack of pricing power. In addition, the prices of domestic and foreign products are upside down, and the inventory of domestic agricultural products is high. The double squeeze of cost and price ceiling effect brings great restriction to the development of agriculture. As industry insiders say, "if the international market sneezes, the Chinese market must catch a cold."

The great changes in agriculture, rural areas and farmers give birth to a period of opportunity to solve problems.

"China's agriculture has reached a new stage of high input, high cost and high risk." Zhang synthetic, director of the Market and Economic Information Department of the Ministry of Agriculture, said that the background and internal causes of the formation of agricultural market risks in the new period lie in four directions: first, profound changes have taken place in the agricultural demand side under the new normal economy; second, the improvement of the price mechanism of agricultural products has brought about reform pains; third, the sustained upside-down impact of domestic and foreign prices is far-reaching; and fourth, the construction of agricultural information and market service system lags behind.

It is worth noting that in this new stage, a change is brewing and fermenting in the agricultural sector, which may give birth to an opportunity to solve the agricultural dilemma.

First of all, "Internet +" hand in hand with financial elements is expected to enhance the competitiveness of China's agriculture. Qu Dongyu, vice minister of the Ministry of Agriculture, pointed out that a key point in the current agricultural development is to continue to promote the flow of financial resources to the fields of agriculture, rural areas and farmers. Relevant departments have issued a lot of institutional arrangements, among which the financial industry is the main force to implement the policy. Therefore, the financial industry should continue to tilt towards agriculture.

At the same time, we should actively explore the development model of rural Internet finance. At present, the form of the financial industry is rich, such as Ant Financial Services Group and other small and micro financial services form a competitive pattern with the traditional financial industry, which helps to promote the financial industry to provide better services for agriculture.

Lin Zhiyong, vice president of China people's property Insurance Co., Ltd., also introduced that around "Internet + Agriculture", the company signed cooperation agreements with a number of agricultural Internet enterprises to integrate insurance services into the sales and purchase of agricultural materials, covering the whole industry chain of agricultural production, circulation and sales of agricultural products, and relying on the company's institutional outlets throughout the countryside to build an online and offline rural integrated service platform.

Secondly, the demand for green environmental protection promotes the improvement of agricultural quality. Chen Tao, chairman of Louis Dreyfus (China) Trading Co., Ltd., said that data show that up to 92% of the pesticides used in the world are produced in China. In addition, China's pesticide consumption is three times the world average, and the problem of food safety is prominent.

Zheng Xinli, executive vice president of the China Center for International Economic Exchange, also pointed out that the problem of agricultural pollution seriously does not meet the requirements of the broad masses of Chinese for food safety. Chemical fertilizers and pesticides are widely used in the production of agricultural products, which makes it difficult to export agricultural products. It is an urgent task for agricultural development to develop organic food, green food and pollution-free food, reduce the use of chemical fertilizers and pesticides, and ensure the safety of food.

Third, "small agriculture" becomes "big agriculture". It is understood that the current rural population is more than 600 million, but the main body of the labor force is the elderly, women and so on, mainly the weak labor force. This situation does not meet the needs of agricultural modernization and agricultural mechanization development. Therefore, we should develop large-scale operation, attract high-quality labor force through land circulation and centralization, and promote "small agriculture" to "big agriculture".

According to Zheng Xinli, there is an example in Henan Province. In a village in the province, more than 10,000 mu of land is contracted by one labor force. He bought a full set of agricultural machinery, growing wheat and corn in one season. When farmers are busy, they hire short-term workers, but they are usually alone. It is a very good change to subcontract the land of farmers' homes to engage in large-scale operation. "under agricultural modernization, it is possible to grow one or two thousand mu of labor in the plain, not to mention planting ten thousand mu. Even in the rice fields in the south, with the help of mechanization, it is entirely possible for a labor force to grow 500 mu of paddy fields. "

Small derivatives invigorate the big chess game

"if there is no variety of futures, we will not trade; without hedging, we will not buy or sell. Therefore, the strict enforcement of no unilateral transactions can ensure that our profits are always locked, and we always know what the profits and losses are before the exchange really happens. " Chen Tao said that Louis Dreyfus's annual return on assets reached 20 per cent, 27 per cent, and its soundness is beyond the reach of many of its peers, or even better than the other three grain companies, one of the keys is the high use of derivatives.

The supply and demand characteristics of agricultural products are different from those of industrial products, which can be supplied and consumed averagely in 12 months of a year. On the other hand, agricultural products are seasonal, and there is a large supply in the short term at harvest, but the supply becomes smaller and smaller over time. As a result, sometimes supply exceeds demand, sometimes supply is less than demand, resulting in market turmoil.

When small farmers produce from one household to another, farmers may not have a strong awareness of risk, but if we promote the scale and mechanization of agriculture to make the agricultural products become commodities, then we need to strictly control the risk. Derivatives can play a very important role in it.

For example, internationally, the United States, Mexico, Canada, Brazil and other countries have launched options to participate in agricultural production pilot projects. From 1993 to 1995, the US government selected 21 counties in seven states to carry out grain option pilot projects, with more than 1000 corn producers and 300 wheat producers participating. The results of the project show that options play a significant role in raising farmers' income, with a survey in 2011 showing that more than 70% of farmers or producers use options to serve agricultural production directly or indirectly. From 1996 to 2000, the actual total expenditure of the Mexican government on the project was 262 million pesos (about 31 million U.S. dollars), while the total expenditure borne by farmers was 192 million pesos, but the total income reached 445 million pesos. Options play a significant role in increasing government financial subsidies and increasing producers' risk aversion and income.

"at present, we all wait until there is a bumper harvest before farmers buy and sell grain. This must be an oversupply. In countries with developed agricultural markets, at least 50% of their grain or products have been sold before a bumper harvest, and there must be a risk control link. To achieve this effect, there must be derivatives, price discovery and hedging tools. Louis Dreyfus uses basis trading in all varieties of trading. " Chen Tao said.

It is worth noting that China's agriculture-related enterprises are also making continuous progress in the use of derivatives. Liu Shengxi, general manager of Zhejiang Yongan Capital Management Co., Ltd., introduced a successful case of using over-the-counter options. After the corn is collected and stored in 2013, Yuntianhua Cooperatives plans to sell 1000 tons of corn in two months at the price of Changchun at the time of the transaction. At the beginning of that month, the purchase price of corn in Changchun was 2200 yuan per ton. in the face of this situation, in order to prevent the price of corn from falling in the future, the cooperative hedged the agreed corn sales, with a hedging target of 1000 tons. On February 17, 2014, Yuntianhua Cooperative and Yongan Capital signed the over-the-counter bearish period right exchange contract and transaction confirmation, which clarified the implementation price, royalty amount, expiration date and other important contents negotiated between the two sides. From the final result, the spot price of corn rose from 2200 yuan / ton to 2260 yuan / ton, and the spot profit of Yuntianhua cooperative was 60000 yuan. In terms of over-the-counter options, as the closing price of corn futures 1405 contract on the maturity date was higher than the agreed execution price, Yuntianhua cooperative abandoned the execution of put options and lost 27090 yuan in royalties. During the duration of the option, Yuntianhua cooperatives made a total profit of 32910 yuan, which is better than using the futures market to hedge directly.