In recent years, with the strong promotion and careful cultivation of various parties in the futures exchange and futures operating institutions, the price discovery, risk management, and resource allocation functions of the futures market have been increasingly recognized and valued by more and more entities, and the number and scale of enterprises participating in the futures market have significantly increased. Behind this, a number of successful cases of combining futures and spot trading and exemplary enterprises have made significant contributions, not only dispelling the concerns of newly entered enterprises but also providing valuable experience and useful reference for a large number of enterprises to participate in the futures market.

In Henan, there are also many entities that continue to use futures tools and have grown stronger, subtly influencing many enterprises in Henan.

Exemplary Enterprises Show Strong Demonstration Effect

This year marks the 20th anniversary of the listing of cotton futures. Henan Tongzhou Cotton Industry Co., Ltd. (hereinafter referred to as Tongzhou Cotton), which is four years older than cotton futures, has not only witnessed the growth, maturity, and success of cotton futures over the past 20 years but has also deeply participated in it, using futures tools to assist its operations and becoming a model of combining futures and spot trading in the domestic cotton industry.

Today, Tongzhou Cotton has developed into an international enterprise group integrating cotton acquisition and processing, cotton textile and garment production, and import and export trade, and is one of the leading enterprises in the domestic cotton industry.

In recent years, cotton prices have fluctuated greatly, which has had a great impact on cotton-related enterprises such as ginning factories, traders, and spinning mills. Each major fluctuation in the cotton market will accelerate the reshuffling and restructuring of the cotton industry. The reason why we can steadily move forward in the face of market turmoil is that we regard risk management as the lifeline of the enterprise, fully utilize futures and options tools to avoid risks, and explore new operating models combining futures and spot trading, such as basis trading and option trading. " said Huang Hongyu, president of Tongzhou Cotton, to the reporter of Futures Daily.

Huang Hongyu introduced that the listing of cotton futures in 2004 helped Tongzhou Cotton achieve rapid development. The company used cotton futures to conduct hedging and basis trading, withstanding the test of major market fluctuations, avoiding risks, and stabilizing profits. Currently, more than 80% of the company's spot trading uses futures and options tools to hedge risks.

The cotton futures listed 20 years ago provided Tongzhou Cotton with broad development opportunities, which is "favorable timing" and "favorable location." Its willingness to be "the first to eat the crab" and its flexible attempts at business innovation are "harmony between man and nature." Henan Fengsheng Agricultural Development Co., Ltd. (hereinafter referred to as Fengsheng Agriculture) also utilizes the futures market and seizes development opportunities.

Peanuts are a superior product in Henan. How to make the peanut industry solid and large has always been a question that Fengsheng Agriculture, a key leading enterprise in Henan's agricultural industrialization, has been pondering.

In February 2021, peanut futures were listed and traded on the Zhengzhou Commodity Exchange. Fengsheng Agriculture seized the opportunity and moved forward. Previously, the company had been designated by the Zhengzhou Commodity Exchange as one of the first delivery warehouses for peanut futures, and in March 2022, it was also added as a delivery vehicle (ship) board service institution for peanut futures.

Before, our peanut planting and sales were entirely based on experience. After the listing of peanut futures, we used the price discovery function of the futures market to better grasp future price trends, adjust planting structure and production plans in advance, avoid blind planting, and be prepared for any eventuality. At the same time, we achieved stable operations through futures hedging," said Ji Hongtao, assistant general manager of Fengsheng Agriculture, to the reporter.

The 200,000-mu high-quality peanut modern agricultural industrial base planned and constructed in Junxian County, Henan, is a concrete manifestation of Fengsheng Agriculture's effective use of futures tools, extending the peanut industry chain, and increasing added value.

Like Tongzhou Cotton and Fengsheng Agriculture, in Henan's non-ferrous metal smelting and processing, chemical industry, and equipment manufacturing industries, many enterprises have stabilized their operations, improved efficiency, and promoted development by participating in and utilizing the futures market.

Henan Tongda Cable Co., Ltd. (hereinafter referred to as Tongda Shares), a representative of excellent private enterprises in Henan, focuses on the research and development and manufacturing of wires and cables, the precision processing and flexible assembly of aviation structural components, and the production and manufacturing of aluminum-based composite new materials. It has been rated as a national-level "specialized, refined, and new-small giant" enterprise. In recent years, the company has actively used futures and other derivative tools to avoid production and operation risks, and in 2021, it participated in the Shanghai Futures Exchange's copper and aluminum options project and won the second prize.

Options allow us to participate in the derivatives market more conveniently. With the help of Galaxy Futures, we strictly followed the risk exposure to match the quantity and strategy of futures and options, achieving good risk management results," Li Gaojie, head of the futures department of Tongda Shares, told the reporter.

Based on the hedging model and experience in copper and aluminum varieties, Tongda Shares has also begun to manage the price fluctuation risks of raw materials such as PVC through the derivatives market.

It is worth mentioning that the above-mentioned Tongzhou Cotton, Fengsheng Agriculture, and Tongda Shares are all cooperative units of the industrial base or industrial and financial service base of domestic futures exchanges. They can be regarded as exemplary enterprises that scientifically and reasonably utilize futures and derivative tools to manage risks.

The power of example is infinite. The actions of exemplary enterprises are often imitated by many enterprises, especially small and medium-sized enterprises, in the industry chain. Their good experience and successful cases in participating in the futures market have a strong demonstration and driving effect, which will guide more enterprises and institutions to learn futures knowledge and participate in and utilize the futures market, thereby promoting the better functioning of the futures market.

Fengsheng Agriculture is both a beneficiary of learning from exemplary enterprises and an object of learning for many operators in the peanut industry chain. By learning from the practices of advanced enterprises, Fengsheng Agriculture has not only secured its own operations but also laid the foundation for the company to establish a "company + cooperative + base + farmer" mechanism for linking farmers and leading farmers. We have established close cooperative relationships with farmers and, with the help of futures tools, provided farmers with stable sales channels and price guarantees, helping farmers to increase their income. In addition, we also conduct joint hedging with local traders to help these traders achieve stable operations," said Ji Hongtao.

As a cooperative unit of the cotton textile sector industrial base of the Zhengzhou Commodity Exchange, Tongzhou Cotton has always actively learned, explored, and summarized the ways and methods of using futures and other derivative tools, carefully carried out market cultivation activities, and guided cotton commune enterprises, industrial customers, listed companies in the industry, and leading enterprises to actively use the futures and options market to avoid market risks and serve more entities. " said Huang Hongyu, "This year, we have been actively promoting the "big hand holding the small hand," and we are currently helping Jiaozuo Huibaichuan Textile Co., Ltd. to build a futures risk control system and business team, design futures and derivatives business models and plans, etc."

In addition to "big hand holding small hand," the innovative exploration of exemplary enterprises will also drive the innovation and upgrading of industrial operating models.

According to the reporter's understanding, at present, the overall atmosphere of Henan's cotton-related enterprises using futures tools is strong. Ginning factories, traders, and spinning mills generally use the basis pricing model when trading cotton and related products, and option trading is also being promoted.

Zhang Xuchuan, general manager of the Zhengyang branch of Zhonghui Futures, said: "Fengsheng Agriculture's participation in using the futures market to stabilize its operations has, on the one hand, promoted the importance of risk management among related entities in the industrial chain, helping to improve the risk resistance of the entire industrial chain; on the other hand, it helps to guide more capital into the agricultural sector, promoting the modernization and transformation and upgrading of the agricultural industry."

Strengthening Weaknesses & Achieving "Big Hand Holding Small Hand"

According to the reporter's statistics, there are more than 300 cooperation units (including various industrial enterprises and related institutions) for the construction of industrial bases, industrial-financial cultivation bases, and industrial-financial service bases of domestic futures exchanges. However, there are fewer than 10 enterprises and institutions from Henan, accounting for less than 3%. This does not match Henan's current economic aggregate in the country.

“Enterprises and institutions included in the exchange's 'base' cooperation list are mostly leading enterprises in a certain field or industry with a deep understanding of futures, rich experience in futures application, and a self-contained system. They are role models for the majority of small and medium-sized enterprises to participate in the futures market. The more such role models a region has, the stronger the appeal, and naturally more enterprises will be driven to participate in and utilize the futures market,” said an insider.

Data from Bixianwang shows that at the end of the first quarter of 2024, according to the A-share listed company caliber statistics, the top five regions in the derivative linkage index of Chinese corporate hedging are Guangdong, Zhejiang, Jiangsu, Shandong, and Shanghai, with corporate hedging indices of 393, 330, 265, 121, and 109, respectively. Henan ranks 12th with a corporate hedging index of 33.

In addition, compared with domestic benchmark enterprises that use futures tools, Henan's "advanced enterprises" still have a gap and room for improvement. "Compared with the domestic 'advanced' regions in futures application, we still have shortcomings. For example, our research on the laws and application models of basis fluctuations is not deep enough, our research on the trends of some bulk commodities is not in place, and there is still a lot of room for improvement in the construction of professional teams and their capabilities," Huang Hongyu frankly stated.

How to leverage the power of role models to encourage more Henan enterprises to participate in and utilize the futures market? The above-mentioned industry insiders provided the following suggestions: First, accelerate the cultivation of more exemplary enterprises to create a demonstration effect. Implement the requirements of the Henan Provincial Government to "support leading enterprises in conducting integrated operations of futures and spot trading, and drive more enterprises in the industrial chain to use the futures market to manage risks." Coordinate resources from relevant parties, provide professional training or even "one-on-one" futures services to provincial leading industrial enterprises with good foundations and active mechanisms, help them establish a scientific, reasonable, and sustainable spot and futures trading model and risk management system, help them make good use of futures tools, and form a replicable and generalizable model. Second, introduce the good experiences and practices of domestic benchmark enterprises. Encourage and guide domestic benchmark enterprises that combine spot and futures trading to develop in Henan, support and organize provincial enterprises to "go out" to learn, promote in-depth cooperation between provincial enterprises and domestic leading enterprises, and introduce advanced futures integration concepts, models, and experience to transform them into the development momentum and competitiveness of the enterprises themselves. Third, establish an industrial chain support mechanism. Through the exemplary enterprises' personal experience and teaching, establish the correct risk management concept for small and medium-sized enterprises, and achieve "big hand holding small hand" and "both spot and futures must be strong" in cooperation.