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Farm futures trading may make strong comeback

Trading in farm futures is set to make a robust comeback after a steady fall over the previous two fiscals, according to regulatory data on turnover of four national level commodity bourses and 19 regional ones. The main reason for the growth is due to the relisting of four out of eight agri commodities that were banned between FY07 and FY09.

While total turnover in the first nine months of the current fiscal grew by close to 50% at Rs 55.26 lakh crore from the corresponding period last fiscal, cumulative turnover of agri commodities grew by 104.45% to Rs 9.02 lakh crore.

Turnover of farm futures trading fell steadily from Rs 13 lakh crore in fiscal ‘07 (April-March) to barely Rs 6 lakh crore in FY09 because of the delisting of eight commodities — wheat, rice, tur, urad, potato, soya oil, rubber and chana — over the period, said BC Khatua, chairman of Forward Markets Commission, which regulates commodity futures trading in the country. The commodities were delisted, following the government concerns over the impact of futures trading on food price inflation. However, the relisting of four banned commodities — chana, potato, soya oil and rubber — in January 2009 rejuvenated interest in this segment of futures trading.

A futures transaction allows the sale and purchase of a commodity at a predetermined rate for delivery at a future date. For hedgers, futures offer an effective means of hedging, against price risk and volatility by transferring their risk on to speculators, who take a contrarian position (to the hedgers) based on information such as crop supply-demand, etc.

“Our data on turnover shows that farm futures are set to come close to their FY07 high of Rs 13 lakh crore in the current fiscal,” said Mr Khatua. “We expect farm futures turnover at Rs 12 lakh crore.”

Exchanges such as NCDEX and NMCE, which predominantly offer agri commodities for trading, were impacted by the ban of commodities over the period. While wheat was relisted in May last year, it was soon followed by the delisting of the sugar contract. However, according to Mr Khatua, the relisting of the four commodities since the beginning of 2009 has helped. In fact, between April and November NCDEX’s average daily turnover (ADT) grew by 60% to around Rs 2,900 crore from a year-ago, while NMCE clocked ADT growth of 535% at Rs 674 crore over the same period.

“The volatility in agri counters because of the poor monsoon and expectations of poor crop have, along with the relisting, helped increase volumes,” said a broker, who requested anonymity. However, the major contributors to the overall turnover were base metals, energy and bullion, which are traded predominantly on MCX. According to FMC, while trade in base metals, energy, carbon credits (negligible), etc, increased by 98% to Rs 24.13 lakh crore between April-December 2009 that of bullion (gold and silver) increased by 9.23% year-on-year to Rs 22.10 lakh crore. The fact that bullion grew from a high base makes the rise in turnover, though modest, significant.

NAFED to import 25,000T of yellow peas

National Agricultural Co-operative Marketing Federation (NAFED) has floated a tender for import of 25,000 tonnes of yellow peas for shipment on March 10 on the eastern ports, the state-run company said. The company has also tendered to import 2,000 tonnes, or in multiples of 1,000 tonnes each, of black matpe, green moong, tur whole, red lentils and chick peas for the Feb-Mar shipment. The last date for submission of both bids is January 27, the company said on its website late on Tuesday.

Basmati export floor may be raised by $200/tonne

A meeting of an empowered group of ministers (EGoM) on prices scheduled for Tuesday is likely to give its nod to hike the minimum export
price (MEP) for basmati by $200 per tonne to the previous level of $1100 per tonne.

Also likely to figure in the discussions are ways and means to bring down the soaring retail price of sugar. The moves under consideration include extending the period of import for white sugar from March 2010 to December, in line with the deadline for zero-duty import of raw sugar. Indications of this were given by food minister Sharad Pawar here on Monday. However, unless international sugar prices soften, this would be of little help.

Although the Cabinet last week decided to stop sugar exports, this was just a politically symbolic move. There is intense pressure on the government to import directly, bypassing the private sector that has imported a minuscule amount of white sugar thus far despite zero duty. Merely extending the import deadline may not help ease consumer prices even marginally until mid-year . Traders have, however, imported in excess of 3 million tonnes of raw sugar.

Another 2.5-3 million tonnes of sugar imports are estimated for the 2009-10 sugar year to meet the annual consumption needs of 23 million tonnes.

But sources ruled out the possibility of direct white sugar imports by the government at the current high global prices, given the possible political repercussions if imports cost much in excess of farmer price for sugarcane and domestic production price. In fact, the government has been unable to bring down prices thanks to high international prices of both raw and white or refined sugar and the consequent refusal of traders to import.

The landed cost for both types of sugar is far in excess of domestic production price per tonne and sugar mills have chosen to hike the sugarcane price to farmers given the acute tight supply in the peak crushing season.

Several administrative and fiscal measures have failed to yield significant results.

Food minister Sharad Pawar last week shot off a letter to UP CM Mayawati asking her to allow traders from UP to pick up 8 lakh tonnes of raw sugar stuck at the Kandla port after the state banned imports.

On rice, it is estimated that at current high market prices paid by basmati traders to farmers at home, the export price of the Pusa 1121 (evolved basmati) variety exceeds $1200 per tonne while that of traditional basmati exceeds $1500 per tonne. Compared to a price of Rs 19,000 per tonne paid by traders to farmers on December 21, 2009, for the Pusa 1121, the price of the variety was Rs 26,000 per tonne in the same period last year. For traditional basmati, the price on December 22 this year was around Rs 37,000 per tonne compared to only Rs 24,000 per tonne same time last year.

Given this and the supply strain for all rice at home in tandem with high price, indications are that the EGoM will go with the view that keeping the MEP at the current $900 per tonne will not be wise.


At $14.6 bn, exports rise for 2nd month running

India's exports rose for the second consecutive month with exports worth $14.6 billion in December , according to Union Commerce and Industry minister, Anand Sharma. The government is expected to take a final decision on extending sops to exporters on Tuesday in New Delhi, Mr Sharma added.

The minister also said that food inflation may be reined in on back of good Rabi prospects for wheat and sugar, though pulses prices were a matter of concern. Speaking at the sidelines of the Bancon 09-10 , Mr Sharma, said that exports amounted to $14.6 billion in December, a growth of 9.4% over November. `Although the country’s exports have moved to a positive terrain in the past two months, the economy is yet to recover from the losses resulted from 13-months of continuous fall in exports , Mr. Sharma said, adding that export growth could maintain momentum moving ahead.

Mr Sharma expressed concerns over soaring food price inflation and indicated that in some cases there have been speculative build-ups . He, however, ruled out the need for foodgrain (wheat and rice) imports. "We don’t have a situation of India needing to import wheat and rice. With good prospects of rabi, we are hopeful of food prices coming down," Mr Sharma said, attributing the current surge in food inflation to high sugar prices, and he also concede that there has been shortages in pulses. Mr Sharma said that the government has taken a number of steps to ease the inflationary situation. These measures are expected to yield results in the foreseeable future, he said.

The government also plans to come out with a single document for foreign direct investment (FDI) soon to simplify understanding of the rules. "We have put this document for discussions with all stakeholders to invite their comment which is expected to close by January 31. By March 31, we will have single FDI document to ensure simplification, easy comprehension and predictability," Mr Sharma said.

Mr Sharma also said that the economic stimulus will be rolled back only after the economy shows sustained growth. Earlier delivering the keynote address Mr Sharma advised the bankers that they have to play a role in ensuring a balanced growth in the country. That growth has to be redistributed, otherwise it will be a zero-sum game. And banks have role to play in this process ’ He said. The govt will take a final decision on extending sops to exporters on Tuesday.