Bloomberg News

Tokyo Grain Exchange Volume May Quadruple After Rice Listing

July 06, 2011

(Adds peak volume in sixth paragraph.)

July 6 (Bloomberg) -- Tokyo Grain Exchange Inc., operator of Japan’s largest agricultural commodity bourse, said trading volume may quadruple after it lists rice futures, helping it break even after three consecutive years of losses.

The bourse aims to boost volume to 40,000 lots a day on average by March from 9,626 lots a day last month, President Yoshiaki Watanabe said in an interview in Tokyo. Domestic rice output is worth about 1.8 trillion yen ($22 billion) a year and futures trading will begin by September after being suspended for 72 years as part of a government program to support prices.

Average rice prices fell 11 percent to 12,807 yen per bag (1 bag contains 60 kilograms) in May from a year earlier, according to data from the agriculture ministry. The exchange had an operating loss of 773.7 million yen in the year ended March 31 as trading volume plunged 25 percent on reduced participation by local investors.

“We expect rice futures will attract money from individual and corporate investors as the commodity is a very popular product and its price is volatile,” said Katsushige Yamazaki, general manager at Tokyo-based broker ACE Koeki Co.

The number of Japanese raw-material bourses has dropped to three from seven in 2005, when the government tightened regulations covering sales of riskier financial assets to individuals, leading to a slump in retail futures trading.

The Tokyo Grain Exchange trades corn, soybeans, coffee, raw sugar and so-called azuki beans. Its trading volume reached a record of more than 26.5 million lots in the year ended March 31, 2004, compared with 3.3 million lots last year.

Reviving Trade

The ministry is reviving rice futures trade after seven decades as it introduced an income-support program for rice growers last year, replacing a price-control system that ensured farm incomes. Without government price support, volatility could increase the need for farmers and merchants to hedge.

The Kansai Commodities Exchange, another agricultural commodity bourse based in the western city of Osaka, has also been approved to list rice futures by Agriculture Minister Michihiko Kano.

The Tokyo and Kansai exchanges will list yen-denominated futures contracts, with deliverable grades including “koshihikari,” a popular rice brand grown in Japan. Imported rice is excluded from physical delivery at the exchanges as the government maintains control over foreign purchases and sales.

As of June 1, the Tokyo Grain Exchange received intentions to trade rice futures from 64 corporations, including 28 distributors, five food processors and two trading companies, data from the bourse showed.

The ministry approved rice futures trade on a trial basis for two years and may decide to halt trading if the market is inactive or unused by hedgers, it said on July 1.

‘Money Game’

The Central Union of Agricultural Co-Operatives, Japan’s biggest farmers organization that controls about 60 percent of domestic rice traded in the physical market, has said it won’t participate in futures trading.

“The government has put rice, our nation’s staple, into a speculative money game,” Chairman Mamoru Motegi said in a statement on July 1.

A lack of participation from hedgers led to delisting of commodity futures in Japan including broiler chicken, potato and soybean meal. The Tokyo Grain Exchange will delist robusta coffee futures and non-genetically modified soybean futures next year on shrinking volumes, Watanabe said.

‘Gloomy’ Future

“If rice-futures trading fails to expand, the future of Japan’s commodity futures industry will be gloomy,” he said.

The shrinking volume led board members last year to decide to transfer agricultural futures trading to the Tokyo Commodity Exchange, the biggest raw-material bourse in Japan, after integrating their trading systems in January.

“Talks with the Tokyo Commodity Exchange have not been progressing as we need to launch the rice market,” Watanabe said. The transfer may be reconsidered, depending on how active rice trading becomes, he said.

Tocom trades gold, silver, platinum, palladium, rubber, gasoline, kerosene, gas oil and crude oil. It represented 89 percent of the total trading volume of the three Japanese raw- material bourses in the first half of this year.

--Editors: Jarrett Banks, Richard Dobson

To contact the reporters on this story: Aya Takada in Tokyo at atakada2@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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