Commodity trading

1

COMMODITIES
Sectoral Report, 2009

1

National Institute of Agricultural Extension Management (MANAGE)
Hyderabad

2

TABLE OF CONTENT

Sl.
no.
1
2
3
4
5
7
8
9
10
11
12
13
14
15
16
17

2

Particulars
Introduction
Evolution of commodity markets
Market Data
International commodity trading
Structure of commodity markets in India
List of Exchanges in India
NCDEX
MCX
NMCE
Spot Exchanges
Weather Trading in India
Policy Liberalization
Changes in market
Issues and challenges
Conclusion
Annexure

Page
no.
3
4
4
5
7
8
8
9
10
11
16
17
17
18
21
22

3

Commodity market in India
Introduction
A commodity is anything for which there is demand, but which is supplied without qualitative
differentiation across a market. One of the characteristics of a commodity good is that its price
is determined as a function of its market as a whole. Well-established physical commodities
have actively traded spot and derivative markets. Generally, these are basic resources and
agricultural products such as iron ore, crude oil, coal, ethanol, sugar, coffee beans, soybeans,
aluminium, rice, wheat, gold and silver. The gradual evolution of commodity market in India has
been of great significance for our country's economic prosperity. In the Indian commodity
market there are so many varieties of products including agricultural products like rice, wheat,
barley etc; energy products like coal, petroleum, kerosene, gasoline; metals like copper, gold,
silver, aluminium and many more. Nowadays a wide range of agricultural products, energy
products, delicate commodities and metals can be sold under standardized contracts on
exchanges prevailing across the globe. Commodities have gained importance with the
development of commodity futures indexes along with the mobilization of more resources in
the commodity market
Commodity Futures market in India
Agriculture sector in India has always been a major field of government intervention since long
back. Government tries to protect the interests of the poor Indian farmers by procuring crops at
remunerative prices directly from the farmers without involving middlemen in between. But
government at the same time has restricted this traditional sector by fixing prices of crops at a
particular level and also by imposing several other restrictions on export and import of
agricultural commodities. All these restrictions prevented this sector to move out its traditional
features.
In the absence of government's intervention the role of futures market becomes very
significant. The demand and supply equation is reflected in the future prices of the commodities
and is of immense help to the farmers in terms of price discovery and price information. In this
way the system of futures market prevent Indian farmers from being directly exposed to the
unexpected price changes all of a sudden. It also helps towards evolving a better cropping
pattern in our country.
The option of hedging risk through future trade help the farmers to take the risk of innovations,
by using new high yielding varieties of seeds, fertilizers and new techniques of cultivation.
Futures Market acts as a smoothing agent between the present and future commodity market.
The presence of arbitragers and day traders in the market provide liquidity to the market and
help in price discovery. So the existence of a futures market is always good for any economy. It
opens up a new opportunity to people to protect themselves from unexpected risks.

3

4

Evolution of the commodity market in India
1900
Oilseed
trade
Gujarat
Vyapari
Mandali

1875
Bombay
Cotton
Trade
Association

1893
Bombay
Cotton
Exchange

1919
Calcutta
Hesian
Exchange

1913
Chamber of
Commerce,
Hapur

1953
Forward
Market
Commission

1927 East
India Jute &
Hessian Ltd

1920 Future
Trading of
Bullions,
Mumbai

1952
Forward
Contract
Regulaction
Act

Market Data of commodities: (Value & Volume Basis)
MCX
2007

2008

Value
(Rs. In Lakhs)

Volume
(In 000’s)
Unit Kg

Value
(Rs In Lakhs)

Volume(In 000’s)
Unit Kg

A)

Ag. Commodity

1.
2.
3.
4.
5.
6.
7.

Almond
Cardamom
Cashew Kernel
Castor Seed
Chana
Coconut oil
Coffee

415066.19
5.39
49455.67
502121.10
2.08
130152.65

82890
2.26
241570
2245070
4
183619

290995.99
216.24
577859.39
78.438

43954
905
2262220
87

8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

Coriander
Cotton
Guargum
Jeera
Jute
Maize
Masur
Mentha oil
Potato
Rice
Soybean
Turmeric
Wheat

12386.27
4791.69
96784
90992.58
78.21
14.73
1625774.77
1083804.72
219.66
28028.10
203165.44
354.97

69.29(candy)
10200
87078
671560
1030
60
294029.64
183231130
580
179460
892020
3370

149235.88
3225.77
1786.02
160854.09
44.74
847611.43
89174.24
701.89
432792.54
-

160475
6940
1884
1031820
450
153008.28
1804950
3020
1381620
-

4

5

21.
22.

Mustard oil
Urad

1.74
50657.06

4
176770

B)

Energy

1.
2.
3.

-

ATF
Crude oil
Electricity

42113266.31
-

1393881.3(BBL)
-

52577.76
85947248.64
-

715.1(BBL)
2050700.1(BBL)
-

4.
5.
6.
7.

Furnace oil
Gasoline
Heating oil
Natural gas

308.80
2586980.10

2(MT)
866379.5(mmBtu)

3002186.10

788215.75(mmBtu)

C)

Metal

1.
2.
3.

Aluminums
Copper
Lead

707068.56
45538228.51
7028066.77

614990
15375506
5459080

587932.91
40028093.61
7307302.47

522753
14277796
8272065

4.
5.
6.
7.

Nickel
Sponge iron
Steel flat
Steel long

7940696.89
232.10
1153.72

542437.25
0.9 (MT)
5.165(MT)

4388282.77
14.82
600.06

505569
0.05(MT)
1.88(MT)

8.
9.

Tin
Zinc

99017.07
24167623.03

15541
17759545

239366.58
13272104.48

33283
15833965

D)

Bullion

1.
2.
3.

Gold
Silver
platinum

74786092.36
57424526.09
-

7901348.5(grms)
306790.07
-

184054386.35
83980721.19
51334.27

15042552.428
393747.525
7.75 (grms)
1879.5 (grms)

International Commodity Exchanges
Commodity
Crude Oil
Crude Palm Oil
Cotton
Sugar
Coffee

Reference Exchange
NYMEX
BMD
NYBOT
NYBOT
LAFFE

Base Metals
Gold
Wheat & Soybean

LME
CME
CME

5

-

6

Chicago Board of Trade
 The Chicago Board of Trade is a leading futures and futures-options exchange.
 More than 3,600 CBOT member/stockholders trade 50 different futures and options products
at the CBOT by open auction and electronically.
 The CBOT added a new category to its diverse product mix in 2001 with the launch of 100
percent electronic Gold and Silver futures contracts.
 For decades, the primary method of trading at the CBOT was open auction, which involved
traders meeting face-to-face in trading pits to buy and sell futures contracts. But to better
meet the needs of a growing global economy, the CBOT successfully launched its first
electronic trading system in 1994.
 Agricultural Commodities traded at CBOT are Wheat, Corn, Soyabean, Soyabean oil,
Soyabean meal, Soybean, Oats, Ethanol, Rough rice, mini corn, mini wheat and mini
Soyabean

London Metal exchange:
 Established for over 130 years and located in the heart of The City of London,
 The London Metal Exchange is the world’s premier non-ferrous metals market. It offers
futures and options contracts for aluminium, copper, nickel, tin, zinc and lead plus two
regional aluminium alloy contracts.
 The LME is a highly liquid market and in 2007 achieved volumes of 93 million lots, equivalent
to $9,500 billion annually
 In 2005 the Exchange launched the world’s first futures contracts for plastics.

ASX Limited
 As one of the world’s top 10 listed exchange groups, measured by its market capitalisation,
 ASX group was created through the merger of the Australian Stock Exchange and the Sydney
Futures Exchange.
 It has domestic market capitalisation of $1.29 trillion & number of listed companies are 2226.

Chicago Mercantile Exchange:
 The Chicago Mercantile Exchange (CME) (often called "The Chicago Merc or The Merc") is an
American financial and commodity derivative exchange based in Chicago.
 The exchange demutualized in November 2000, went public in December 2002, and merged
with the Chicago Board of Trade in July 2007 to become CME Group Inc.
 CME trades several types of financial instruments: interest rates, equities, currencies, and
commodities. It also offers trading in alternative investments such as weather and real
estate derivatives.
 On Aug. 18, 2008 shareholders approved a merger with the New York Mercantile Exchange.

New York Board of Trade:
 The New York Board of Trade (NYBOT) is a wholly-owned subsidiary of Intercontinental
6

7

Exchange (ICE).
 It is a physical commodity futures exchange located in New York City. It originated in 1870 as
the New York Cotton Exchange (NYCE).
 Commodities traded on the exchange are Cocoa, Coffee, Cotton, Pulp (wood pulp), Sugar
(Domestic), Sugar (World), Orange juice (Frozen Concentrate).

Kansas City Board of Trade:
 The Kansas City Board of Trade (KCBT) is a commodity futures and options exchange regulated
by the Commodity Futures Trading Commission (CFTC).
 The primary products traded at the exchange are futures contracts on hard red winter wheat,
and the underlying option contracts. Due to its nutritional value, the hard red winter wheat
usually trades at a premium to CBOT soft red winter wheat.

Structure of Commodity Market in India

Forward Markets Commission (FMC) headquartered at Mumbai, is a regulatory authority which is
overseen by the Ministry of Consumer Affairs and Public Distribution, Govt. of India. It is a statutory
body set up in 1953under the Forward Contracts (Regulation) Act, 1952. " The Act provides that the
Commission shall consist of not less than two but not exceeding four members appointed by the Central
Government out of them being nominated by the Central Government to be the Chairman.

The functions of the Forward Markets Commission are as follows:
1) To advise the Central Government in respect of the recognition or the withdrawal of recognition from
any association or in respect of any other matter arising out of the administration of the Forward
Contracts(Regulation) Act 1952.
7

8

2) To keep forward markets under observation and to take such action in relation to them, as it may
consider necessary, in exercise of the powers assigned to it by or under the Act.
3) To collect and whenever the Commission thinks it necessary, to publish Information regarding the
trading conditions in respect of goods to which any of the provisions of the act is made applicable,
including information regarding supply, demand and prices, and to submit to the Central Government,
periodical reports on the working of forward markets relating to such goods;
4) To make recommendations generally with a view to improving the organization and working of
forward market.
5) To undertake the inspection of the accounts and other documents of any recognized association or
registered association or any member of such association whenever it considerers it necessary. Forward
Markets Commission provides regulatory oversight in order to ensure financial integrity (i.e. to prevent
systematic risk of default by one major operator or group of operators), market integrity (i.e. to ensure
that futures prices are truly aligned with the prospective demand and supply conditions) and to protect &
promote interest of customers /non-members.

The Forward Markets Commission prescribes following regulatory measures:
• Limit on net open position as on the close of the trading hours. Sometimes limit is also imposed on
intra-day net open position. The limit is imposed operator-wise, and in some cases, also member-wise.
• Circuit-filters or limit on price fluctuations to allow cooling of market in the event of abrupt upswing or
downswing in prices.
• Special margin deposit to be collected on outstanding purchases or sales when price moves up or down
sharply above or below the previous day closing price. By making further purchases/sales relatively
costly, the price rise or fall is sobered down. This measure is imposed only on the request of the
Exchange.
• Circuit breakers or minimum/maximum prices: These are prescribed to prevent futures prices from
falling below as rising above not warranted by prospective supply and demand factors. This measure is
also imposed on the request of the Exchanges.
• Skipping trading in certain derivatives of the contract, closing the market for a specified period and
even closing out the contract: These extreme measures are taken only in emergency situations.

There are 3 National Exchanges for enabling the purchase and sale of commodities, futures
and options. These are:
1. Multi-Commodity Exchange of India Ltd. (MCX) located at Mumbai
2. National Commodities and Derivatives Exchange Ltd. (NCDEX) located Mumbai
3. National Multi-Commodity Exchange of India Ltd. Located at Ahmadabad.
NCDEX:
NCDEX is a public limited company incorporated on April 23, 2003 under the Companies Act, 1956. It
obtained its Certificate for Commencement of Business on May 9, 2003. It commenced its operations on
December 15, 2003.NCDEX is a nation-level, technology driven de-mutualised on-line commodity
exchange with an independent Board of Directors and professional management - both not having any
vested interest incommodity markets. It is committed to provide a world-class commodity exchange
8

9

platform for market participants to trade in a wide spectrum of commodity derivatives driven by best
global practices, professionalism and transparency.
NCDEX is the only commodity exchange in the country promoted by national level institutions. This
unique parentage enables it to offer a bouquet of benefits, which are currently in short supply in the
commodity markets. The institutional promoters and shareholders of NCDEX are prominent players in
their respective fields and bring with them institutional building experience, trust, nationwide reach,
technology and risk management skills.
NCDEX is regulated by Forward Markets Commission. NCDEX is subjected to various laws of the land like
the Forward Contracts (Regulation) Act, Companies Act, Stamp Act, Contract Act and various other
legislations.
NCDEX is located in Mumbai and offers facilities to its members about 550centres throughout India. The
reach will gradually be expanded to more centres.
Promoter shareholders: Life Insurance Corporation of India (LIC), National Bank for Agriculture and Rural
Development (NABARD) and National Stock Exchange of India Limited (NSE).
Other shareholders: Canara Bank, CRISIL Limited (formerly the Credit Rating Information Services of India
Limited), Goldman Sachs, Intercontinental Exchange (ICE), Indian Farmers Fertilizer Cooperative Limited
(IFFCO) and Punjab National Bank (PNB).
NCDEX currently facilitates trading of following commodities –
Wheat, Barley, Cashew, Castor Seed, Chana , Chilli, Coffee - Arabica, Coffee -Robusta, Crude Palm Oil,
Cotton Seed Oilcake, Expeller Mustard Oil, Groundnut (in shell), Groundnut Expeller Oil, Guar gum, Guar
Seeds, Gur, Jeera, Jute sacking bags, Indian Parboiled Rice, Indian Pusa Basmati Rice, Indian Traditional
Basmati Rice, Indian Raw Rice, Indian 28.5 mm Cotton, Indian 31 mm Cotton, Masoor Grain Bold,
Medium Staple Cotton, Mentha Oil, Mulberry Green Cocoons, Mulberry Raw Silk, Mustard Seed, Pepper,
Potato, Raw Jute, Rapeseed-Mustard Seed Oilcake, RBD Palmolein, Refined Soy Oil, Rubber, Sesame
Seeds, Soybean, Yellow Soybean Meal, Turmeric, V-797 Kapas, Yellow Peas, Yellow Red Maize.

Metals –
Aluminum Ingot, Electrolytic Copper Cathode, Gold, Mild Steel Ingots, Nickel Cathode, Silver, Sponge Iron,
Zinc Ingot.

Energy –
Brent Crude Oil, Furnace Oil.

MCX
The exchange started operations in November 2003. MCX is a demutualised nationwide electronic multi
commodity futures exchange set up by Financial Technologies with permanent recognition from
Government of India for facilitating online trading, clearing & settlement operations for futures market
across the country. MCX offers futures trading in 55 commodities as on December 31, 2007, defined in
terms of the type of contracts offered, from various market segments including bullion, energy, ferrous
and non-ferrou smetals, oils and oil seeds, cereals, pulses, plantations, spices, plastics and fibers.
The exchange strives to be at the forefront of developments in the commodities futures industry and has
forged ten strategic alliances across the world, including with Tokyo Commodity Exchange, Chicago
Climate Exchange, London Metal Exchange, New York Mercantile Exchange, New York Board of Trade and
Bursa Malaysia Derivatives, Berhad.
9

10

Key shareholders:
The Key shareholders in MCX are: State Bank of India and its associates (SBI), National Bank for
Agriculture and Rural Development (NABARD),National Stock Exchange of India Ltd. (NSE), SBI Life
Insurance Co. Ltd ,Bank of India (BoI) , Bank of Baroda, Union Bank of India, Corporation Bank, Canara
Bank, HDFC Bank, Benett Coleman & Company Limited , Fid Fund (Mauritius) Ltd. - an affiliate of Fidelity
International, ICICI Trusteeship Service Limited, IL&FS Trust Company Limited, Kotak group, Citibank
Strategic Holdings Mauritius Limited, Merrill Lynch Holdings and Financial Technologies of India Ltd.

NMCE
NMCE was the first Exchange to take up the issue of differential treatment of speculative loss. It was also
the first Exchange to enroll participation of high net-worth corporate securities brokers in commodity
derivatives market. It was the Exchange, which showed a way to introduce warehouse receipt system
within existing legal and regulatory framework. It was the first Exchange to complete the contractual
groundwork for dematerialization of the warehouse receipts. It is a zero-debt company; following widely
accepted prudent accounting and auditing practices. It has robust delivery mechanism making it the most
suitable for the participants in the physical commodity markets. It is the only Commodity Exchange in the
world to have received ISO 9001:2000 certification from British Standard Institutions (BSI). NMCE
facilitates electronic derivatives trading through robust and tested trading platform, Derivative Trading
Settlement System (DTSS). When order is placed on the exchange, the server at NMCE scans through the
orders posted on it from all its trading terminals. It then locates and matches the best counter-offers/bids
by maintaining anonymity of the counter-parties. Anonymity helps is eliminating formation of cartels and
other unfair practices, thereby protecting the efficiency of price-discovery at the Exchange. NMCE was
the first commodity exchange to provide trading facility through internet, through Virtual Private
Network (VPN).NMCE has also set up a Trade Guarantee Fund. Well-capitalized in-house clearinghouse
assumes counter-party risk of settlement. NMCE was the first to initiate process of dematerialization and
electronic transfer of warehoused commodity stocks. The unique strength of NMCE is its settlements via
a Delivery Backed System, an imperative in the commodity trading business. These deliveries are
executed through a reliable Warehouse Receipt System, leading to guaranteed clearing and settlement.

Salient feature:
First to get the ‘National’ status and be fully operational. Demutualised Corporate Structure leading to a
reliable, effective, impartial and rule-based management by professionals having no trade interest.
Convergence of all the offers and bids emanating from all over the country in a Single Electronic Order
Book of the Exchange ensuring equal access to all intermediaries. Participation of diverse interests like
Importers, Exporters, Growers, Brokers, Traders, etc., using an electronic trading system providing a fair,
efficient and transparent commodities market. Fair Trading Practice ensured through inbuilt checks and
balances in the System.

Benefits of NMCE
NMCE would bring about the converge of large-scale processors, traders, and farmers along with banks.
NMCE would provide a common ground for fixation of future prices of a number of commodities enabling
efficient price discovery/forecast. Hedging using different and diverse commodities would also be
possible with help of NMCE.
10

11

Benefits to Farmers
Efficient Price Discovery/Forecast made by the NMCE will enable farmers decide cropping pattern and
investment on inputs. Price risk management would be possible via NMCE Price Stability resulting from a
equilibrium in supply and demand for a commodity would be possible through NMCEWRS introduced for
trading in futures on the Exchange would lead to proper grading, standardization and scientific storage of
agricultural commodities resulting in value addition and better price realization to farmers. WR’s could be
discounted by Farmers with banks and used by farmers to raise finance quickly. The NMCE would help
provide liquidity and a viable secondary market for WR’s as a good financial instrument.

Promoters of NMCE:
Central Warehousing Corporation (CWC), National Agricultural Co Operative Marketing Federation of
India Limited (NAFED), Gujarat Agro Industries Corporation Limited (GAIC),
Gujarat State Agricultural Marketing Board (GSAMB), National Institute of Agricultural Marketing (NIAM),
Neptune Overseas Limited (NOL), Punjab National Bank (PNB).

Spot Exchanges
Introduction
Commodities have been traded in the spot market from time immemorial. The presence of too many
intermediaries in the system and an opaque price discovery mechanism has been the major disadvantage
of the present Spot Market system. More over arriving at the reference spot prices for the Futures
Exchanges has also been a problem due to non standardized nature of the Spot Markets. To do away with
the shortcomings of the Spot Markets the concept of Spot Exchanges has been developed.

Salient Features of Spot Exchanges:







Single day trading contracts
Intra day trading with settlement of obligation on net basis
All positions outstanding at end of the day resulting into compulsory delivery
Demat delivery facility available
Loan facility against pledge of demate / warehouse receipt
All deliverable futures contracts, including agri commodities, gold silver, non-ferrous metals and
wide number of other industrial products to be launched
 Cash futures arbitrage opportunity

Regulations

Unlike the Futures Exchanges which are regulated by the Forward Market Commission the Spot
Exchanges comes under the jurisdiction of the respective state governments where the exchanges are set
up. The APMC act prevalent in the various states acts as a hurdle to the establishment of Spot Exchanges.
The Exchange operations are regulated in each state by the respective state governments and are be
11

12

subjected to various laws of the land like the Companies Act, Stamp Act, Contracts Act, APMC Act and
others which impinge on its working.

States in which Spot Exchanges are Operational:
Gujarat, Maharashtra, Karnataka, Rajasthan and Madhya Pradesh. In addition to these states since Bihar
and Kerala does not have APMC act, setting up Spot Exchanges in these states shall be relatively easier.

Business model of Spot Exchanges
The Spot Exchanges are distinctively different from the Future Exchanges as physical delivery of the
commodity is compulsory in Spot Exchanges. Unlike the Futures Exchanges the positions outstanding at
the end of the day, will result into compulsory delivery. But during the day, the transactions of offsetting
nature will be netted off and delivery will be executed only with respect to the net quantity outstanding
at the end of the day. All the terms relating to quality specifications, place of delivery, date of delivery
and other conditions will be specified by the Exchange in advance and all contracts executed on the
system would be on the basis of such terms only.

Spot Exchanges for Spot Trading (NEST) system has two types of markets: Normal Market
All orders which are of regular lot size or multiples thereof are traded in the Normal Market. For
commodities that are traded on the NEST system are deliverable in physical or in dematerialised mode.

Advantage of Spot Exchange over Spot Markets:

1. The seller has prior knowledge of the spot and futures prices at his own or at a nearby centre.
This provides him with the option of selling his produce at the centre of his choice.
2. Since the goods are assayed prior to sale, he knows the grade of his produce and can gauge the
true price of his product based on the benchmark grade price and the applicable premium or
discount accorded based on the grade.
3. The Spot platform would offer excellent opportunities for arbitrage against future prices if the
goods in the spot market conform to futures quality.

Auction Market:

In the Auction Market, auctions are initiated by the Exchange on behalf of trading members for
settlement related reasons.
Auctions are again of two types:



12

Forward Auction
ii. Reverse Auction

13

SPOT Exchange Server
Seller
Listing On
SPOT
Excganges
Warehouse

Pay Out

Bank

Print out of
Auction Page

UDC
creator

Weighment
Bridge

Grading
gg
Check
for
Margin

Approval of
CM through
Token Login

Delivery
Out
Instruction

COLLATERAL
MANAGER

Pay in
Bid Rejected

Buyer

TM LOG IN
Fig: Model of Forward Auction
13

14

CARBON CREDITS – A MARKET OF THE 21st CENTURY

With growing concerns among nations to curb pollution levels while maintaining the growth in their
economic activities, the emission trading (ET) industry has come to life. And, with the increasing
ratification of Kyoto Protocol (KP) by countries and rising social accountability of polluting industries in
the developed nations, the carbon emissions trading is likely to emerge as a multibillion-dollar market in
global emissions trading. The recent surge in carbon credits trading activities in Europe is an indication of
how the emissions trading industry is going to pan out in the years to come.

Definition
One carbon credit is equivalent to one tone of carbon dioxide or its equivalent greenhouse gas (GHG).
Carbon credits are “Entitlement Certificates” issued by the United Nations Framework Convention on
Climate Change (UNFCCC) to the implementers of the approved Clean Development Mechanism (CDM)
projects. The potential buyers of carbon credits shall be corporate in various Annexure I countries that
need to meet the compliance prevailing in their countries as per the Kyoto Protocol or those investors
who would like buy the credits and with the expectation of selling them at a higher price during the KP
phase (2008-12). The extension of KP shall be ratified by the current signatories of KP in their future
meetings essentially to curb GHG emissions into the environment.

Sources of demand & supply
The carbon credits can be either generated by project participants who acquire carbon credits through
implementation of CDM in Non Annexure I countries or through Joint Implementation (JI) in Annexure I
countries or supplied into the market by those who got surplus allowances with them. The buyers of
carbon credits are principally from Annexure I countries. They are:
Especially European nations, as currently European Union Emission Trading Scheme (EU ETS) is the most
active market; Other markets include Japan, Canada, New Zealand, etc. The major sources of supply are
Non-Annexure I countries such as India, China, and Brazil.

Trading In Carbon Credits
Emissions trading (ET) is a mechanism that enables countries with legally binding emissions targets to buy
and sell emissions allowances among themselves. Currently, futures contracts in carbon credits are
actively traded in the European exchanges. In fact, many companies actively participate in the futures
market to manage the price risks associated with trading in carbon credits and other related risks such as
project risk, policy risk, etc. Keeping in view the various risks associated with carbon credits, trading in
futures contracts in carbon allowances has now become a reality in Europe with burgeoning volumes.
Currently, project participants, public utilities, manufacturing entities, brokers, banks, and others actively
participate in futures trading in environment-related instruments. The European Climate Exchange (ECX),
a subsidiary of Chicago Climate Exchange (CCX), remains the leading exchange trading in European
environmental instruments that are listed on the Intercontinental Exchange (ICE), previously known as
International Petroleum Exchange (IPE).
14

15

Price influencing factors
In Non-Annexure B countries (the developing countries) across the world, CER prices are influenced by
various factors including EUA prices, crude oil prices, electricity, coal, natural gas, the level of economic
activities across Annexure I countries, among others Some of the major price influencing factors:










Supply-demand mismatch
Policy issues
Crude oil prices
Coal prices
CO2 emissions
Weather/Fuel prices
European Union Allowances (EUAs) prices
Foreign exchange fluctuations
Global economic growth

Potential participants in carbon credits trading are as below












Hedgers
Producers
Intermediaries in spot markets
Ultimate buyers
Investors
Arbitragers
Portfolio managers
Diverse participants with wide participation objectives
Commodity financers
Funding agencies
Corporates having risk exposure in energy products

India as a potential supplier
India, being one of the leading generators of CERs through CDM, has a large scope in emissions trading.
Analysts forecast that its trading in carbon credits would touch US$ 100 billion by 2010. Currently, the
total registered CDM projects are more than 300, almost 1/3rd of the total CDM projects registered with
the UNFCCC. The total issued CERs with India as a host country till now stand at 34,101,315 (around 34
million), again around 1/3rd of the total CERs issued by the UNFCCC. In value terms (INR), it could be
running into thousands of crores.
Further, there has been a surge in number of registered projects in India. In 2007, a total of 160 new
projects were registered with the UNFCCC indicating that more than half of all registered projects in India
happened last year. It is expected that with increasing awareness this would go further up in the future.
The number of expected annual CERs in India is hovering around 28 million and considering that each of
these CERs is sold for around 15 euros, on an average, the expected value is going to be around Rs 2,500
crore. Various industries that have scope of generation of CERs:

15

16










Agriculture
Energy ( renewable & non-renewable sources)
Manufacturing
Fugitive emissions from fuels (solid, oil and gas)
Metal production
Mining and mineral production
Chemicals
Afforestation & reforestation
(Source: www.mcxindia.com)

Weather Trading in India
Weather is one of the most uncontrollable risks. Predict the amount of rainfall, snowfall, hurricanes,
tsunamis and droughts has been impossible. Weather risk affects businesses such as Agriculture,
construction, energy, entertainment, Governments, Insurance, manufacturing, offshore, retailing,
transportation, tourism.
Weather trading has been around since 1998.The first weather derivative trade was between Enron
Corporation and Koch industries. Most of the trades during that time were over the counter trades. It
started trading in the Chicago Mercantile Exchange sometime around 1999, and it started getting mass
popularity due to El Nino. Exchange trading helped the weather derivatives to get more popular,
transparent and reachable. According to the CME the weather derivatives traded were around thirty-two
billion USD in March 2008 with a high touching forty-five billion USD in 2006.
In an economy like India where agriculture has approx 17 % share in the Indian GDP, weather plays a very
important role. India is plagued each year by droughts, flash floods, thunder storms earth quakes and
flooding from torrential monsoonal rains. 60% of the workforce in the country is related to agriculture.
Not only that a major share of the electric power consumed in India is generated with the help of Hydro
Power Stations. Predictability of weather in India is very dismal and farmers are not ready for the
unexpected. Presently Indian exchanges are not allowed to trade weather derivatives because raindrops
and sunshine are intangible. The Indian parliament is working on a bill and within the next year or so a bill
will be passed which shall allow to trade natures intangibles. Presently the agrarian sector is served by
Index based weather Insurance. Multi commodity exchange of India (MCX) is planning to delve into the
market of weather trading. It is estimated that the weather trading market in India is presently valued at
one billion USD and assumed to expand to ten billion USD upon a year of operating. Hence it’s more than
a necessity to use high finance and try to design products which can marginalize these unpredictable and
uncontrollable forces of nature and tap into such a huge market. Weather Derivative still has not been
introduced in the Indian Market. It shall be introduced in the market by 2010.
The pricing of weather derivatives for the Indian context are inspired by the pricing concept used for the
weather derivatives traded in CME. The inputs for the calculations have been changed for e.g. instead of

16

17

degree days as used in the US and European markets rainy days have been used for the Indian Weather
Scenario.
The trading platform would allow one to buy or sell the value of a temperature and precipitation (rain)
index at a specific future date. While power companies such as Reliance Power can trade in high-degree
days (HDD) and low-degree days (LDD) contracts in Mumbai and estimate how much electricity could be
consumed during those days, farmers can use weather derivatives to hedge against poor harvests caused
by drought. Weather Risk Management Services (WRMS) — a weather insurance company — which is
launching the trading platform, estimates transactions worth $10 billion within a year.
(Economic Times, 15th March 2008)

Policy liberalization
1960

1993

forward trading
baaned
exceptpepper,Tur
meric,castor seed
and Linseed

set up of Kabra
committee to study
effects of future
trading in context of
liberalization and
globalization

1980
forward trading
allowed in potato and
gur

1977
castor seed and
linseed
futuresuspended

1985 forward trading
on castor seed
allowed

Changes in future commodity markets after economic liberalization



The Kabra Committee recommended allowing futures trading in 17 commodity groups. It also recommended
strengthening of Forward Markets Commission and amendments to Forward Contracts (Regulation)
Act, 1952.
 Government accepted most of these recommendations and futures trading have been permitted in all
recommended commodities except Bullion and Basmati Rice.
 Additional staff was provided to the FMC and the post of Chairman was upgraded to the legal of
Additional Secretary to the Government of India.
 The recommendations to set up Regional office at Lucknow, Delhi and Kochi were kept in abeyance for
the time being.
17

18



An expert Committee on Agricultural Marketing headed by Shri Shankerlal Guru recommended linkage of
spot and forward markets, introduction of electronic warehouse receipt system, inclusion of more
and more commodities under futures trading and promotion of national system of warehouse
receipt.
 The sub-group on forward and futures markets formed under the chairmanship of Dr. Kalyan Raipuria,
Economic Adviser, and Department of Consumer Affairs to examine the feasibility of implementing
the recommendations made by the Expert Committee chaired by Shankerlal Guru recommended
that the commodity specific approach to the grant of recognition should be given up.
 The Government appointed a committee under the Chairmanship of Shri K.C. Misra, the then
Chairman of the FMC to prepare a road map for setting up the nationwide multi commodity
Exchange within the parameters laid down in the meeting held on 11.10.1999. Shri N. Nagarajan,
Economic Advisor, RBI and Shri Birendra Kumar, the then M.D., SBI Capital Markets were other
members of the Committee.
 In the Budget speech made on 28th February 2002, the Finance Minister announced expansion of futures
and forward trading to cover all agricultural commodities. Future trading allowed in year 2003.
 The Forward Contracts (Regulation) Amendment (FCRA) Bill, 2006
 Abhijit Sen committee was set up to examine whether futures trading contributed to the unexpected spurt
in prices of agricultural commodities in 2006.
 It submitted its report on March 2007 where it recommended not banning the future trading.
 However wheat, urad, tur and rice trading was banned on 2007.
 In May 2008 govt. suspended 4 commodities of agricultural origin from future trading those are: soyaoil,
chana, rubber and potato.
 A 20 month old ban on futures trading in wheat has been lifted with polling coming to an end
across the country (May 15, 2009) .The wheat export is permitted subjected to a limit of 650000
tons up to 31st March 2010.
 The ban on four farm commodities — chana, soy oil, potato and rubberis still in place.
 A ban on trading of sugar was imposed recently by FMC which saw a major set back among
traders and has an impact on the prices too.



The Budget proposal on 06 July lifted commodity transaction tax (CTT) that has already hit the
volumes.

Issues & Challenges in Commodity Market
Even though the commodity derivatives market has made good progress in the last few years, the real issues
facing the future of the market have not been resolved yet. Agreed, the number of commodities allowed for
derivative trading have increased, the volume and the value of business has zoomed, but the objectives of
setting up commodity derivative exchanges may cannot be achieved and the growth rates witnessed may not
be sustainable unless these real issues are sorted out as soon as possible. Some of the main unresolved
challenge s & issues are discussed below.

18

19

Efficiency
Efficiency, fairness and transparency are the hallmarks of any good exchange. This comes through efficiency
of cost, efficient price discovery mechanism and a competitive spot market. An automated trading system is
an enabler of efficient price discovery. Equally important is to create an efficient and guaranteed settlement
mechanism. Identification of correct settlement prices is very important. A move from physical settlements
to warehouse receipt based settlement mechanisms is required. This will also help to bring about liquidity by
making the process of transfer easy, particularly for retail users and farmers. A paradigm shift from
managing risk on a centralized basis to managing risk on an individual basis is required.

Quality Assurance
Quality assurance lends credibility and confidence to participants in commodity market exchange. This
comes through a commonly accepted quality grading and control system and attendant certification process.

Liquidity
The challenge is to create liquidity. This comes through the width and depth of the product-market domain
of the exchange. Commodity exchanges like MCX have the width in terms of products. But it has to build
depth by providing latitude for hedgers, arbitrageurs and speculators. To work through heterogeneous
microstructures of various commodities will be a very important challenge for commodity trading. At the
same time, it will need to provide the trading, clearing, risk management and settlement framework.
Depth would also come from a wider participation of not just industrial users but also retail users. This can
be brought about by information technology. MCX is well positioned to use technology to bring together
participants in the entire distribution chain. This will help efficient matching of orders, create audit trails and
minimize transaction errors.

Infrastructure
Infrastructure is the fourth challenge India has to create a national transportation, logistics and distribution
infrastructure for commodities. This is necessary to enable our country to emerge as a global power in
commodity exchanges. The national road transportation networks, port development to new warehousing
initiatives mark the beginning in this direction. This must be expanded to encompass new rural roads, new
ports, inland rail transportation, and modern warehouses and elaborate cold chain systems. They have to be
integrated by information technology based management systems. Infrastructure, is considered the biggest
challenge

The Warehousing and Standardization
For commodity derivatives markets to work efficiently, it is necessary to have a sophisticated, cost-effective,
reliable and convenient warehousing system in the country. Warehouses also need to be conveniently
located.
19

20

Cash versus Physical Settlement
It is probably due to the inefficiencies in the present warehousing system that only about 1% to 5% of the
total commodity derivatives trade in the country is settled in physical delivery. Today in practice, most
contracts are settled in cash but before maturity. There is a need to modify the law to bring it closer to the
widespread practice and save the participants from unnecessary hassles

Tax and Legal bottlenecks
There are at present restrictions on the movement of certain goods from one state to another. These need
to be removed so that a truly national market could develop for commodities and derivatives. Also,
regulatory changes are required to bring about uniformity in octroi and sales taxes etc. VAT has been
introduced in the country in 2005, but has not yet been uniformly implemented by all states. CTT has been
abolished in this current budget which is a encouragement for the market participants.

Lack of Economy of Scale
There are too many (3 national level and 21 regional) commodity exchanges. Though over 80 commodities
are allowed for derivatives trading, in practice derivatives are popular for only a few commodities. Again,
most of the trade takes place only on a few exchanges. All this splits volumes and makes some exchanges
unviable. This problem can possibly be addressed by consolidating some exchanges.

The Regulator
As the market activity pick-up and the volumes rise, the market will definitely need a strong and
independent regulator; similar to the Securities and Exchange Board of India (SEBI) that regulates the
securities markets. Unlike SEBI which is an independent body, the Forwards Markets Commission (FMC) is
under the Department of Consumer Affairs (Ministry of Consumer Affairs, Food and Public Distribution) and
depends on it for funds. It is imperative that the Government should grant more powers to the FMC to
ensure an orderly development of the commodity markets. The SEBI and FMC also need to work closely with
each other due to the inter-relationship between the two markets.

Future prospect
Future prospect of commodity derivative trading is upbeat. Futures market size (both commodities and
securities) relative to Gross Domestic Product (GDP at current prices) in the US is about 90%, in China about
85%, and in Brazil about 200%. Commodities derivatives trade value relative to GDP (at current price) in
India was 5.81 % in 2003-04, 20.14% in 2004-05 and it has gone up to 66 % during 2005-06. The commodity
futures trade has taken a big leap in the past two years. Likely participation of Banks, Mutual Funds and
Foreign Institutional Investors along with introduction of options trading after amendments to FCR Act,
1952, will boost the commodity futures trading further in the coming years.

20

21

Conclusion
India is one of the top producers of a large number of commodities, and also has a long history of trading in
commodities and related derivatives. The commodities derivatives market has seen ups and downs, but seems
to have finally arrived now. The market has made enormous progress in terms of technology, transparency
and the trading activity. Interestingly, this has happened only after the Government protection was removed
from a number of commodities, and market forces were allowed to play their role. This should act as a major
lesson for the policy makers in developing countries, that pricing and price risk management should be left to
the market forces rather than trying to achieve these through administered price mechanisms. The
management of price risk is going to assume even greater importance in future with the promotion of free
trade and removal of trade barriers in the world.

21

22

Analysis of agri commodities
In a market economy, price is determined by the interaction of supply and demand. The study of supply
and demand is also known as the study of fundamentals or "Fundamental Analysis". To do a fundamental
analysis following equation is required for each and every crop.

The Commodity equation:
“O.S + P + I = C+ EX+ E.S”
Following are the main important factors which drive the demand and supply in the market,for
agricultural produces.
Seasonality – Kharif, Rabi & Summer
Supply & demand
Weather condition
Biotic and Abiotic factors
Substitutes- scope less
Varying qualities/varieties
Dispersed markets/ Price asymmetry
The factors those need to be considered while estimating supply are

Supply:
Sources of supply: Production, Beginning stocks
Trends in the supply
Shifting patterns in the supply
Economic and policy related issues- impact on supply
Imports
Carry forward stocks
Substitutes
Similarly while estimating demand the following factors are required to be taken into consideration
22

23

Demand
Major sectors of demand
Trends in the demand
Shifting patterns in the consumption
Economic and policy related issues- impact on demand
Exports
Old stocks
Substitutes – elasticity W.R.T Price

To predict price view for the year,
Statistically study the Y-o-Y changes in Stocks, Production, Consumption, Exports & Imports
Estimate Supply
Factors (Acreage, Weather, Yield, Raw material, Operational efficiency, Recovery rates) affecting supply
are considered & their correlation with supply is calculated and then supply has been estimated.
Estimate Demand
Factors (Economy growth, Population, Industrial performance, Sector performance, Performance of rival
markets) affecting demand are considered & their correlation with demand is calculated and then supply
has been estimated.

Using the demand and supply one can arrive at the ending stock and this can be used to speculate the
price that may prevail in the period for that particular commodity.

Technical analysis:
Apart from fundamental analysis technical analysis can also be done for the commodities considering the
price fluctuation that occurred during their trading sessions on the exchange platform. As price discounts
everything and it’s a strong believe in market that history repeats itself technical analysis also plays
important role in predicting prices and helps in buying and selling decisions. As fundamental analysis
shows how much should be the price technical analysis shows when and how long the prices are going to
prevail and what changes can be anticipated.
Moving averages, oscillators, MACD, RSI price volume index supports and resistances always help as a
guiding tool to take effective buying or selling decisions.

23

24

Cotton
Cotton is a creamy white soft fiber that is primarily used to manufacture textile and garments throughout
the world. Cotton is derived from around the seeds of the cotton plant. It’s processed to get natural
polymers and additionally cotton seeds are used for animal feed and oil and many variety of uses. As a
commodity is has got high demand across the globe.

Global production of cotton: 111.6 million bales (480 pounds each)
World’s largest producer China-32 million bales of (480 pounds each)
World exports and imports -32.8 million bales of (480 pounds each)

Major cotton-importing countries:
Name of the country

Quantity imported in US 480 lbs bales

China,
Pakistan,
Turkey

2.5 million bales
900,000 bales
667,000 bales

Major cotton-exporting countries:
Name of the country

Quantity exported in US 480 lbs bales

India
United States
Brazil

4.75 million bales
12.24 million bales
2 million bales

Indian scenario:
India is the 2nd largest exporter of cotton and last year exported around 8.5 million bales and this year the
figures are down at 4.75 million bales. Production is anticipated to be 30.9 million bales of cotton this
year .With major producing states like Andhra Pradesh, Maharastra & Gujurat going for a good rate of
sowing the markets are expecting more quantity as compared to last year. With the export figures a little
reduced the prices are going to be low in Indian markets as compared to last year’s prices.

24

25

Balance sheet of cotton for India (2008-09)
COMMODITY:

COTTON ( lakh bales of 170 kgs)

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09*

Beginning stock

40.5

29

40

24

21

72

52

47.5

43

Production

140

158

136

170

243

244

280

315

309

Import

22.13

25.26

17.67

7.21

12

4

5.53

6.5

7

Total Supply (i)

202.63

212.26

193.67

201.21

276

320

337.53

369

359

Domestic Consumption

173.03

171.76

168.83

177.1

195.03

217

232.03

241

230

Exports

0.6

0.5

0.83

12.11

9.14

47

58

85

50

Total Demand (ii)

173.63

172.26

169.67

189.21

204.17

264

290.03

326

280

Ending Stocks ( i - ii)

29

40

24

21

72

56

47.5

43

60

May

June

Source: The Cotton Corporation of india ltd

Crop Calendar of cotton in India:
States
Gujurat
Punjab
Haryana
Rajasthan
Andhra Pradesh
Maharastra

Jan

Feb

Mar

Apr

July

Aug

Sep

Oct

Nov

BARLEY
Barley is a cereal grain derived from the annual grass Hordeum vulgare. It serves as a major animal feed
crop, with smaller amounts used for malting (in beer and whisky) and in health food. In 2008 ranking of
cereal crops in the world, barley was fourth both in terms of quantity produced (153.8 million tons) and
in area of cultivation (566,000 km²).

World production
Commodity
Barley
Source-www.grains.org & www.ico.org

25

Global Production
153.8 million tones

Dec

26

BARLEY
CONSUPTION
1. Russia
2. Canada
3. Ukraine

PRODUCER
1. Russia
2. Canada
3. Turkey

IMPORTER
1. Japan
2. Saudi Arabia
3. Canada

EXPORT
1. Ukraine
2. Australia
3. Canada

INDIAN SCENARIO
The cultivation of barley in India is mainly concentrated in the areas of Uttar Pradesh, Rajasthan and
Madhya Pradesh. Barley production in India is a mere 1.33 million tones out of a total grain production of
219 million tonnes in 2007-2008. In 2007-08, the total area for barley cultivation was 0.77 million
hectares, while the production was estimated at 1.31 million tonnes. With an increased area in
cultivation, it is believed that barley cultivation would accelerate in the near future. Although the feed
portion would remain stable, the food, seed and industrial use would go up at a substantial rate.

Balance sheet of barley for India (2008-09) Source: Commodityindia.com
COMMODITY:Barley

Year

2003-04

2004-05

2005-06

2006-07

2007-08

Beginning stock

24

34

34

34

34

Production

1410

1300

1200

1220

1310

Import

0

0

0

0

0

Total Supply (i)

1434

1334

1234

1254

1344

Domestic Consumption

1400

1300

1200

1220

1310

Exports

0

0

0

131

375

Total Demand (ii)

1400

1300

1200

1220

1310

Ending Stocks ( i - ii)

34

34

34

34

34

2008-09

34
1204
0
1238
0
50
1208
30

Crop calendar of Barley in India:
States
U.P
Rajasthan
Punjab
Haryana

Jan

Feb

Mar

Harvesting

26

Apr

May

June

Sowing

July

Aug

Sep

Oct

Nov

Dec

27

Technical chart of barley future as traded on NCDEX (sept. fut)

COFFEE
Introduction
Coffee is a beverage obtained from coffee plant’s fruit called cherry. The coffee plant refers to any type of tree in
the genus madder family which is actually a tropical evergreen shrub that has the potential to grow up to 100 feet
tall Coffee is used as a beverage all over the world.

27

28

World Production
Commodity
Coffee
Source-www.grains.org & www.ico.org

Global Production
141 million tones

Coffee
Consumption
U.S.A
Germany
Japan

Production
Brazil
Vietnam
Colombia

Import
U.S.A
Germany
Italy

Export
Brazil
Vietnam
Colombia

Indian Scenario


India is the world’s fifth largest producer of coffee. India produces 2,74,000 tons of coffee annually
which constitutes of 94,000 tons and 1,80,000 tons of Arabica and Robusta coffee respectively.

Balance sheet of Coffee for India (2008-09)

Source: Coffee Board, Indiastat

COMMODITY:Coffee
Year

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

Beginning stock

17705

40110

47170

74920

88940

79190

77270

Production

275275

270500

275500

274000

288000

262000

272675

Import

0

0

0

0

0

0

0

Total Supply (i)

292980

310610

322670

348920

376940

341190

349945

Domestic Consumption

68000

75000

80200

82300

84100

85800

91073.3

Exports

184870

188440

167550

177680

213650

178120

190253

Total Demand (ii)

252870

263440

247750

259980

297750

263920

281326

Ending Stocks ( i - ii)

40110

47170

74920

88940

79190

77270

68619

CROP CALENDER OF COFFEE FOR INDIA
States
Karnataka
Kerela
Tamil Nadu

Jan

Harvesting

28

Feb

March

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

29

SOYBEAN
Introduction:
Apart from the high yield potential, soybean possesses a very high nutritional value. It contains about
20 percent oil and 40 percent high quality protein. It is widely used in the industrial production of
different antibiotics.
World Production:
Soybean production constitutes around 55% of the total world production of oilseeds.
Commodity
Soybean

Quantity ( million tons )
170-185

Soybean:
Production

consumption

Export

Import

USA

USA

USA

China

Brazil

Brazil

Brazil

European Union

Argentina

Argentina

Argentina

Japan

Indian scenario
The annual production of soybean in India is around 7.5 million tons. Madhya Pradesh being the
leading producing state of India contributes to around 75% of the total Indian production and is
also called the soybean bowl in India; it holds the 6th position in the leading consuming
countries.

Balance Sheet of Soybean for India (2008-09)
COMMODITY: soybean
Year

2003-04

2004-05

2005-06

2006-07

2007-08

Beginning stock

19

65

90

106

53

Production

6800

5850

6300

7690

8200

Import
Total Supply (i)
Domestic Consumption
Exports
Total Demand (ii)
Ending Stocks ( i - ii)

0
6819
6515
239
6754
65

0
5915
5819
6
5825
90

0
6390
6315
5
6320
70

0
7796
7736
7
7743
53

0
8253
8165
5
8170
83

2008-09
83

7910

29

0
7993
7872
4
7876
117

30

Technical chart of soybean fut as traded on NCDEX(sep fut)

WHEAT
Introduction:
Wheat is the world’s most widely cultivated food crop. Wheat compares well with other important
cereals in its nutritive value. It contains more protein than other cereals. Mainly used as a food grain
across the world.
World Production:
Commodity
Wheat
Wheat:
Production
China
India
USA

Quantity ( million tons )
684.6

Consumers
China
India
Russia

Exporters
USA
Russia
Canada

Importers
Egypt
Iran
Brazil

Indian scenario:
India's wheat production in 2007-08 was 78490 metric tonness, decreased from 75810 metric tonnes
in 2006-07. This year it is estimated to be 78.5 million tonnes.
30

31

Balance Sheet of Wheat for India (2008-09)
COMMODITY:
YEAR
Beginning stock
Production
Import

2001-02

Total Supply (i)
Domestic Consumption
Exports
Total Demand (ii)
Ending Stocks ( i - ii)

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

23000

15700

6900

4100

2000

4500

3500

6410

71810

65100

72150

68640

69350

75810

78490

78400

34

8

8

32

6708

2000

3000

0

94844

80808

79058

72772

78058

82310

84990

84810

74294

68258

72838

69971

74358

73358

75850

77600

4850

5650

2120

801

200

200

50

50

79144

73908

74958

70772

74558

73558

75900

77650

15700

6900

4100

2000

3500

8752

9090

7160

CROP CALENDER OF WHEAT FOR INDIA
States
Haryana
Punjab
Madhya Pradesh
Uttar Pradesh

Jan

Feb

Sowing

Harvesting

31

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

32

Technical chart of wheat future as traded on NCDEX:

Cardamom
Introduction:
Cardamom is the Queen of Spices. Being the third most expensive spice in the world (after saffron and
vanilla), it is one of the most exotic spices. Indian cardamom has a history as old as human
civilization. Southern India and Sri Lanka are regarded as origin of this spice. Till recently India was the
main Producer and exporter of this commodity, but of late Guatemala has emerged as a keen competitor
to Indian cardamom in the international spice market. Indian cardamom is slightly smaller, but more
aromatic. As a whole, cardamom is cultivated commercially in India, Sri Lanka Guatemala and Tanzania.
Global production of cardamom: 34000 Metric tons.
World’s largest producer of cardamom: Guatemala (20000 Metric tons).
World exports and imports: $ 30.5 million.

Major cardamom- importing countries:

Name of the country

Quantity imported in metric tons

Saudi Arabia
Singapore
India

520
450
320

32

33

Major cardamom- exporting countries:
Name of the country

Quantity exported in metric tons

Guatemala
India
Sri Lanka

1200
750
380

Indian scenario:
India is the second largest producer with an average production of 11000 to 12000 metric tons and the
second largest exporter with an average export of 650 to 780 metric tons. Indian cardamom is considered
as superior quality but in the international markets, India has always been out priced by Guatemala which
has negligible domestic consumption responsible for low pricing. At present the production is anticipated
to be12000 metric tons.

Balance sheet of Cardamom for India (2008-09):
Commodity

Beginning stock
Production
Import
Total Supply (i)
Domestic Consumption
Exports
Total Demand (ii)
Ending Stocks ( i - ii)

Cardamom (in metric tons)
2004-05
2005-06
299
835
11415
12340
330
437
12044
13612
10358
10560
850
863
11208
11423
835
2189

2006-07
2189
11235
623
14047
10780
650
11440
2607

2007-08
2607
9450
875
12932
10932
500
11432
1500

2008-09
1500
12000
180
13680
11000
750
11750
1930

Source : Commodityindia, spiceboard of india

Crop calendar of cardamom in India:
State
Kerala
Karnataka
Tamil Nadu
sowing

harvest

33

Jan

Feb

March

April

May

June

July

Aug

Sep

Oct

Nov

Dec

34

Technical chart of Cardamom future as traded on NCDEX(sep fut)

MAIZE
Maize is major grain derived from Zea mays. It serves as a major animal feed crop, input for starch
industries, with smaller amounts used in health food. It is also used in the production of ethanol which is
used as an alternative to gasoline. It provides nutrition to both humans (33.3%) and animals (66.6 %).

World production
Commodity
Maize
Source-International Grain Council

CONSUPTION
1. USA
2. China
3. Ukraine
34

PRODUCER
1. USA
2. China
3. Brazil

Global Production
775 million tonnes * estimated

IMPORTER
1. Japan
2. Korea
3. Taiwan

EXPORTER
1. USA
2. Argentina
3. Brazil

35

INDIAN SCENARIO
The cultivation of maize in India is mainly concentrated in the areas of Karnataka, Andhra Pradesh,
Bihar, Punjab, Uttar Pradesh and Madhya Pradesh. Maize production in India is a mere 17 million tonnes
out of a total grain production of 219 million tonnes in 2007-2008. Around 50 % of the maize produced is
used by the feed industry. Starch industry is another major consumer of maize. India is also an exporter
of maize, mainly to the south east asean countries. As per the production estimates for grain production
in India, India’s maize production is expected to be close to 17 MMT.

Balance sheet of maize for 2008-09
1997-98

300

10.82

175

11155

10853

2

10855

300

1998-99

300

11.15

250

12020

11350

17

11367

653

19992000

653

11.51

50

12771

11950

95

12045

726

2000-01

726

12.04

1

14237

13050

25

13075

1162

2001-02

1162

13.16

1

12263

12000

50

12050

213

2002-03

213

11.15

0

15193

13500

1257

14757

436

2003-04

436

14.98

3

14619

13900

543.27

14443.3

271

2004-05

271

14.17

4

14985

14200

1082.26

15282.3

264

2005-06

264

14.71

4

15368

13900

419.95

14320

260

2006-07

260

15.09

4

19224

14200

4473

18673

551

2007-08

551

19.3

5

17556

16300

400

16700

856

2008-09

856

18.5

5

19361

17400

1000

18400

961

Crop calendar of maize in India
States
Andhra
Pradesh(K)
Andhra
Pradesh(R)
35

Jan

Feb

Mar

Apr

May

June

July

Aug

Sep

Oct

Nov

Dec

36

Rajasthan(K)
Madhya
Pradesh(K)
Bihar(K)
Uttar
pradesh(K)
Karnataka(K)
Karnataka(R)

Technical chart of Maize futures as traded on NCDEX (oct. fut)

36

37

CRUDE OIL
Petroleum (L. petroleum from Greek πετρέλαιον, lit. "rock oil") or crude oil is a naturally occurring,
flammable liquid found in rock formations in the Earth consisting of a complex mixture
of hydrocarbons of various molecular weights, plus other organic compounds. Crude traded in
international market is traded in terms of barrels and NYMEX is the reference exchange for crude. Crude
oil price has been volatile over the years. From the highs of about 140$ a barrel it hit the low of 32 $ per
barrel this year. It is presently traded at close to 65 $ per barrel. The OPEC countries control the supply
and prices of crude to a large extent.

World Scenario:
CONSUPTION
1. USA
2. China
3. Japan

PRODUCER
1. Saudi
Arabia
2. Russia
3. USA

IMPORTER
1. USA

EXPORT
1. Saudi Arabia

2. Japan
3. China

2. Russia
3. UAE

INDIAN SCENARIO
India already imports over 70 percent of its crude oil requirements, with its oil import bill being close to
USD 90 billion in 2008-09. Crude oil occupies has a share of 36 % in the Indian energy pie.(Source:
Planning commission of India statistics) The commencement of production of crude oil from Cairn India
Ltd's have provided a major boost to the domestic oil and gas sector in India and Some of the existing oil
and gas fields were experiencing a decline in their production since they had already been in production
for several years and were past India has an installed capacity of refining 177.97 million metric tonnes of
Crude oil.

37

38

Balance Sheet of Crude Oil in India (values in million tonnes)
2002-03
Beginning stock

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09*

0

2.47

4.43

6.85

8.34

7.278

6.965

Production

33.04

33.37

33.98

32.19

33.988

34.117

33.9924

Import

81.99

90.43

95.86

99.41

111.5

121.67

126.659

Total Supply (i)

115.03

126.27

134.27

138.45

153.83

163.07

167.617

Domestic Consumption

112.56

121.84

127.42

130.11

146.55

156.1

161.882

0

0

0

0

0

0

0

112.56

121.84

127.42

130.11

146.55

156.1

161.882

2.47

4.43

6.85

8.34

7.278

6.965

5.73473

Exports
Total Demand (ii)
Ending Stocks ( i - ii)

38

39

Technical chart of brent crude oil as traded on MCX(Nov fut)

CRUDE PALM OIL
Palm oil is edible plant oil derived from the fruit and kernels (seeds) of the oil palm Elaeis
guineensis.BMD is the reference exchange for CPO. It used to be the cheapest edible oil but with the
increase in its use to manufacture biodiesel its prices started increasing and hence its price has a high
degree of correlation with Crude prices. India is the 4th largest consumer of CPO after China, Indonesia
and European Union.

World production
Commodity
Palm oil
Source-International Grain Council

39

Global Production
35 MTs

40

CRUDE PALM OIL
CONSUPTION
1. China
2. Indonesia
3. EU

PRODUCER
1. Malayasia
2. Indonesia
3. Nigeria

IMPORTER
1. China
2. EU
3. India

EXPORT
1. Malayasia
2. Indonesia
3. Nigeria

INDIAN SCENARIO
The prices of Crude Palm oil and Soybean oil are closely correlated as they are competing products. India
imports about 65,000 tonnes of palm oil from Malaysia every month. India used to be the largest
importer of Malaysian palm oil before being replaced by China in 2002. India's decision not to impose
import duty on crude palm oil (CPO) while maintaining a 20 per cent duty on soybean oil is expected to
boost CPO imports to the country, at least in the first quarter of this year. This year the imports of palm
stood at 5.9 lakh tonnes in June alone which is around 100 % higher than the previous year. At present,
crude edible oils can be imported without paying any duty, while refined oil imports such as soya, palm
and sunflower attract 7.5% import duty.

Balance Sheet of Crude Palm oil in India (Values in million tons)

Beginning stock
Production
Import
Total Supply (i)
Domestic
Consumption
Exports
Total Demand (ii)
Ending Stocks ( i - ii)

40

20022003-04 2004200520062007-08
2008-09*
03
05
06
07
350
124
50
208
20
100
50
35
40
40
40
50
50
50
3954
3486
3725
2899
3800
4000
3668.71
4339
4215

3650
3598

3815
3606

3147
3125

3870
3769

4150
4095

3768.71
3694.1

0
4215

2
3600

1
3607

2
3127

1
3770

5
4100

6
3700

124

50

208

20

100

50

68.7143

41

Technical chart of palm oil futures as traded on MCX (oct. fut.)

41