Concept Of Forward Trading Is A Western One

Coimbatore: The concept of forward trading is a western one and it may not work in Indian conditions where majority of farmers do not possess holding capacity to derive benefit from forward trading, the National Egg Coordination Committee (NECC) has said while urging the Centre to withdraw futures in maize and soya.

The committee, a known opponent to commodity futures trading, has blamed it for the unbridled rise in the prices of maize and soya – the two key commodities widely used in poultry feed manufacture.

The NECC, in a communication to the Union Government, has pointed out that the system of forward trading may work in developed economies such as the US where the farmers by virtue of their large holdings do enjoy capacity to hold foodgrains. But the same is not the case in India where majority of maize or soya growers are marginal farmers and do not have the capacity to hold their produce and they sell away their harvest at low prices to the traders who taking advantage of the forward trading to jack up their prices.

Poultry farmers were hit by the “unprecedented” increase in the maize and soya prices in the past two years and the maize which was ruling in the price band of Rs 500-525 a quintal rose to Rs 900 and in some places the price has gone up to Rs 1000. Soya meal prices more than doubled from Rs 7000-8000 a tonne to Rs 19,000. This is despite the increase in the domestic production of maize this year to 16.8 million tonnes from last year’s 14 million tonnes. The main reason for the price increase is the speculative trading provided by the forward trading.

Due to the steep increase in the poultry feed ingredient prices, the egg production cost has increased in the last 12 months from 90 paise-Re 1 to Rs 1.80/Rs 1.90 per egg and in the case of broilers, it spurted from Rs 27-28 a kg to Rs 40-41. Poultry farmers are continuously losing and unless the situation is remedied, 50 per cent of the poultry industry would be wiped out, NECC said. It also wanted the export of these commodities be streamlined by canalising the commodities exports through a government designated agency

Futures Trading In Potato

Mumbai: The ban on futures trading in potato, chana, soya oil and rubber has surprised market participants, as prices of these commodities are already coming down from their recent highs.

Prices of potato, for instance, have crashed from its high of Rs 620 per quintal in mid-March to Rs 470 per quintal (Rs 4.70 per kg) in Agra on Wednesday, when the ban on futures trading was announced.

Chana in the spot markets are down from a high of Rs 3,000 per quintal in mid-March to Rs 2,350, while soya oil has dropped to Rs 580 per 10 kg from Rs 740 levels in March.

In April, the Government allowed duty-free import of crude edible oil and slashed duty on refined edible oils to 7.5 per cent, in a bid to rein in runaway retail prices.

Rubber is hardly traded on the futures market and has a daily turnover of about Rs 3-4 lakh. The recent highest turnover in rubber was about 50-60 tonnes in MCX, otherwise the daily turnover is not more than 30-40 tonnes (3 to 4 contracts), said Harish Galipalli, Head of Research, Karvy Commodities.

Potato

It is the peak arrival season for potato in Uttar Pradesh, Gujarat and West Bengal. Spot prices have already bottomed out and farmers are offloading their produce at throwaway prices, due to non-availability of adequate storage capacity.

The National Horticultural Research and Development Foundation has estimated production at 293.46-lakh tonnes in 2007-08 crop season compared with 270.20-lakh tonnes last year.

“Farmers might be the ultimate losers as prices may start declining further in the absence of price signals from the futures market. In fact, Uttar Pradesh and West Bengal governments have purchased potatoes at Rs 2.50 a kg to help farmers,” said Satish Gupta, a Delhi-based trader.

Soya oil

Soya oil prices in India just reflect international trend. Starting March, prices on Chicago Board of Trade have crashed from 72.69 cent per pound to 48.60 cent per pound. Global soyabean output has declined seven per cent to 220 million tonnes (mt) in 2007-08 against 237 mt last year.

Edible oil seeds production has also declined to 390 mt against 408 mt in the last year.

Apart from 20 per cent drop in US soyabean output, shifting large chunks of agriculture produce for bio-fuels led to a sharp gain in prices of all the edible oils, said an analyst.

Soyabean and soyaoil have 90 per cent price correlation. About 2,000 kg of oil is extracted by crushing one tonne of soyabean. “Irrespective of the ban, the future price trend will depend on the international developments, as we are net importers of edible oil,” he added.

Chana

Rabi production in 2007-08 is estimated below 50-lakh tonnes compared with 58 lakh-tonnes last year. Moreover, carry forward stocks were almost nil, pushing prices upward.

Prices have risen steeply from a high of Rs 2,000 per quintal in 2007 end to Rs 3,000 per quintal in the last 4-5 months.

Despite importing 1.2 million of pulses in 2007-08, the Government could not cool down domestic prices as imports were as costlier as the domestic prices were.

However, the recent raids to check the storage limits imposed by the State Governments augmented supply and pulled prices down.

India produces about 13-14 mt of pulses annually, which is almost stagnant for the last 15 years.

Rubber

Skyrocketing Crude oil prices has pushed rubber prices up 23 per cent in the last four months in India. Crude oil is used for processing rubber. India has produced about 8.25-lakh tonnes in 2007-08 compared with 8.53-lakh tonnes in the previous year.

“There is hardly any volume in the futures market as far as rubber is concerned. I really do not understand how the ban will help bring down domestic prices,” said Galipalli.