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Price Index for Pork Futures

A pork price index will be the first item to be produced by an "action plan for information on major agricultural commodities" signed by China's Ministry of Agriculture and the Dalian Commodity Exchange on March 24, 2017.

According to the Ministry of Agriculture's terse announcement, the plan encompasses exchange of data resources, analysis of price trends, issuance of statistical indicators and exchange of personnel between the Ministry of Agriculture's Information Center and the Dalian Commodity Exchange. The first project will be an indicator showing the average price of swine carcasses leaving processing plants. This indicator is in support of a pork futures contract to be traded on the exchange.

According to the announcement, the Ministry's Information Center will become a central player in "big data" and "informatization" of agriculture. The intent of the new index is to give farmers better market information so they can make better decisions, the announcement said.

The exact same promises about more and better market information smoothing out cycles in hog markets were made when China launched a "hog price alert" system in 2009. Three different departments were supposed to issue nine statistical indicators on a weekly and monthly basis to prevent market gyrations. The indicators appear in cryptic form on hard-to-find web sites or have disappeared altogether. There has been no stabilization of the market: producers over-expanded in 2012-14 and then engaged in a mass liquidation of sows--exactly what the statistical indicators were supposed to prevent.

The tie-up between government statisticians and the futures exchange sounds like trouble in a country where few have scruples about insider trading. It also opens up the possibility that the government could manipulate futures prices. This tie-up could undermine the credibility of both Ministry of Agriculture statistics and futures exchange prices without a firm separation between government statisticians and the trading community.
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