Feasibility analysis on carrying out hedging business
1、 Background and necessity of the company’s Hedging Business
The company is mainly engaged in the production and sales of pigs. In order to lock in the company’s product cost and product sales price and effectively avoid the risks caused by the price fluctuation of raw materials and inventory products in production and operation activities, the company plans to use commodity futures and options for hedging business operation. 2、 Overview of hedging business to be carried out by the company
1. The main business of the proposed hedging company is limited to the varieties of pigs.
2. Amount of capital to be invested: according to the company’s business objectives in 2022, it is estimated that the maximum amount of margin required by the company to carry out commodity hedging business in 2022 will not exceed RMB 250 million (excluding the physical delivery of futures), which can be recycled within the validity period.
3. The proposed hedging period: within one year from the date of deliberation and approval by the board of directors of the company. 3、 Feasibility of the company’s Hedging Business
The company has met the necessary conditions for carrying out commodity futures and option hedging business. The details are as follows:
The company has formulated the management system of commodity futures hedging business, which has been deliberated and approved by the board of directors of the company. The commodity futures hedging business management system clearly stipulates the approval authority, internal audit process and risk handling procedures of hedging business. The company sets up a “futures decision-making group” to manage the company’s futures and option hedging business. The members of the “futures decision-making group” include the president, the person in charge of the supply chain center, the person in charge of pig futures, the person in charge of finance, the person in charge of internal control and the person in charge of legal affairs; The board of directors authorizes the president to take charge of futures and option hedging business and act as the head of the “futures decision-making group”; The team members are responsible for the approval, supervision and disclosure of hedging schemes and related affairs according to their division of labor. The team members are stable and experienced, have a high awareness of the company’s operation and products, and have a more in-depth study of the market. The company’s existing self owned capital scale can support the margin required by the company to engage in commodity futures hedging business. Therefore, the company’s commodity hedging business is feasible.
4、 Risk analysis of hedging business
1. Price fluctuation risk: the futures market changes greatly, which may lead to price fluctuation risk and investment loss.
2. Capital risk: futures trading adopts margin and mark to market system, which may bring corresponding capital risk.
3. Liquidity risk: liquidity risk may be caused by the difficulty of transaction due to the inactive transaction. 4. Internal control risk: futures trading is highly professional and complex, which may cause risks due to imperfect internal control system.
5. Technical risk: technical risk may be caused by incomplete computer system. 5、 Risk control measures taken by the company
1. Match the hedging business with the company’s production and operation to hedge the risk of price fluctuation to the greatest extent. The futures position shall not exceed the spot demand for hedging. In principle, the time period of futures position shall match the time period of risk in the spot market.
2. The company will reasonably allocate its own funds for hedging business and will not use the raised funds for hedging directly or indirectly. Strengthen the internal control of fund management and strictly control the maximum margin of no more than 250 million Yuan approved by the board of directors.
3. Reasonable selection of futures hedging months: the company will focus on futures trading and reasonably select contract months to avoid market liquidity risk.
4. In accordance with the provisions of the guidelines for self discipline supervision of listed companies of Shenzhen Stock Exchange No. 1 – standardized operation of listed companies on the main board, the management system of commodity futures hedging business has been updated and revised, which clearly stipulates the approval authority, internal audit process and risk handling procedures of hedging business. The company has set up a special commodity hedging operation team, commodity hedging business operation monitoring team and corresponding business processes to control through authorization, post restraint, internal audit and other measures.
5. Set up a trading, communication and information service facility system that meets the requirements: the company will set up a system to ensure the normal operation of the trading system and the normal development of trading work. In case of wrong order, take corresponding treatment measures in time and reduce losses.
6. The audit and supervision department of the company shall regularly and irregularly inspect the hedging transaction business, supervise the hedging transaction business personnel to implement risk management policies and risk management procedures, and timely prevent operational risks in the business.
6、 Conclusion on the feasibility of the company’s Hedging Business
The company carries out hedging in strict accordance with the company’s business needs. At the same time, the company has established a complete business management system and internal control system. Therefore, it is feasible for the company to carry out commodity hedging.
Tech-Bank Food Co.Ltd(002124) board of directors may 19, 2002
