Every year when the apple trees mature, fruit traders in northwest China's Shaanxi Province face a challenge: apples they just purchased from farmers pile up in the warehouse, but little cash comes their way.
With the launch of apple futures, however, companies are now able to tackle the financing bottleneck. By using warehouse receipts for the stored apples certified by futures exchanges as collateral, small fruit traders can secure loans that are otherwise hard to obtain.
"It was very difficult for agricultural firms to access finance as the apples themselves cannot be pledged as collateral," said Peng Xiaoqiang, general manager of Huasheng, a local fruit trader.
More than a year after its debut on the Zhengzhou Commodity Exchange, apple futures have become an important instrument not only for farmers to hedge against price volatilities but for agricultural companies to access funds.
China is the world's largest apple producer and consumer, with more than half of the global apple output coming from the country. But apple traders and producers are having a hard time expanding as they are often turned down by banks for their lack of collateral.
"For agricultural firms to grow, the key issue they need to tackle is liquidity. Apple futures opened a new financing channel for us," said Peng.
Seeing the growing demand for warehouse receipt financing, futures companies have jumped on the bandwagon. Last harvest season, CITIC Securities Capital Management helped four apple traders in Shaanxi secure loans of over 11 million yuan (about 1.6 million U.S. dollars) via warehouse receipt financing.
Chen Huaping, president of the Zhengzhou Commodity Exchange, said that more derivatives of the commodity, such as apple options, will be rolled out at a proper time to better serve apple growers and agricultural firms.