| As the world’s largest producer and consumer of pork,China’s meat consumption accounts for more than 70% of pork consumption,and the development of the hog industry plays an important role in ensuring food security in China.However,due to the influence of the "hog cycle",the spot price of live hogs in China has been fluctuating frequently and drastically for a long period of time,posing a large price risk to participants in the hog industry chain such as hog farmers,feed manufacturers and slaughterers.The Live Hogs futures,listed on the Dalian Commodity Exchange on 8 January 2021,provide a new way for enterprises related to the hog industry chain to hedge their price risks with hedging.So far,China’s Live Hogs futures have been listed for more than two years,and the trading volume and number of participants in Live Hogs futures have seen rapid development,but there is little research in academia on the selection of hedging strategies as the core issue of futures hedging.Therefore,this paper not only provides theoretical support for the study of Live Hogs futures hedging in China,but also provides practical reference for the development of hedging strategies for the hog farming industry in China,by studying Live Hogs futures hedging strategies based on different empirical methods.This paper adopts a combination of theoretical and empirical research methods,firstly,it composes and summarises relevant domestic and international literature research in four aspects: hedging theory research,hedging empirical research,hedging strategy and factors influencing hog prices;then,it analyses the China’s hog spot market,the futures market and the need for hedging;thirdly,on the basis of the above theoretical and Secondly,based on the above theoretical and realistic analysis,the settlement price of the main Live Hogs futures contract on the Dalian Commodity Exchange and the average price of hogs in 22 provinces and cities are selected as the sample data,and the ADF test,PP test and DF-GLS test are used to test their smoothness,and then the co-integration test and ARCH test are conducted.After passing the tests,OLS,ECM and DCC-GARCH models were used to study the hedging strategies of Live Hogs futures under various scenarios,such as daily hedging and weekly hedging,and whether the influence of basis difference was taken into account,and the hedging performance of Live Hogs futures under each model was compared and analysed.The final study found that: all three hedging models confirmed that Live Hogs futures hedging can effectively reduce hog spot price risk;weekly hedging can achieve better hedging performance than daily hedging for hogs;the hedging ratio and performance of the OLS model is higher than those of the ECM and DCC-GARCH models,and can reduce hog spot price risk by 17.57%.The hedging ratio and performance of the OLS model were higher than those of the OLS model and the DCC-GARCH model,which were able to reduce the risk of hog spot price by 17.57%.In response to the above findings,the paper also makes policy recommendations.There are three main innovations in this paper: firstly,this paper adds a hedging strategy study for Live Hogs futures to the existing futures hedging studies.Secondly,this paper confirms the effectiveness of Live Hogs futures in hedging the risk of hog spot price fluctuations and provides a reference for hog industry chain participants to carry out hedging practices.Thirdly,this paper innovatively introduces hog feed cost as a basis difference influencing factor into the model,taking into account the special characteristics of live trading of Live Hogs futures varieties,and further investigates Live Hogs futures hedging strategies,thus providing a reference for the industry to select Live Hogs futures hedging strategies. |
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