Introduction National Commission on Agriculture (1976) defines Agricultural Marketing as a process which starts with a decision to produce a saleable farm commodity and it involves all the aspects of market structure or system, both functional and institutional, based on technical and economic considerations and includes pre and post harvest operations, assembling, grading, storage, transportation and distribution. The marketing of farm product is a complex process. Why is marketing being complex so important? Marketing is an incentive for further production. As only through efficient marketing, producer gets good price for their commodities. Thus efficient marketing will lead to increase in production and thus result in the economic development of the country. Hence development of suitable marketing strategy is very essential. This can be done only if we develop each and every marketing function.( Marketing function is defined as any single activity performed in carrying a product from point of its production to the ultimate consumer may be termed as marketing function. )Thomson classified marketing function into i) Primary functions which are assembling/ procurement, processing, dispersion or distribution; ii) Secondary functions which are packing or packaging, transportation, grading, standardization and quality control, storage and warehousing,
determination/discovery of prices, risk taking, financing, buying and selling, demand creation, dissemination of market information; iii) Tertiary functions which are banking, insurance, communications and supply of energy. Among these functions the secondary functions of price discovery and risk taking is where futures trading become relevant.
Under the marketing system, there is the responsibility of realizing the value of the goods delivered to the final consumers and distributing it to the various marketing agencies and farmers. The prices of agricultural products fluctuate not only from year to year, but during the year from month to month, day to day and even on the same day. The changes in prices may be upward or downward. Price variation cannot be ruled out, for the factors affecting the demand for, and the supply of, agricultural products are continually changing. Price volatility is perhaps the most pressing issue facing producers of primary commodities. The low prices for basic commodities limit the income farmers (/small producers) can receive for their products and the high volatility of these prices makes it very difficult for them to optimize the use of their income (Morgan, 2000 cited by Bose 2008). Futures trading can be a major tool in mitigating this risk and also can help in efficient price discovery.
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What is futures trading? Acharya and Agarwal (2004) define futures trading as a device for protection against the price fluctuations which normally arise in the course of the marketing of commodities. More specifically futures trading can be said as the trading through futures contract. Futures contract is a standardized contract between two parties to exchange a specified asset (commodity) of standardized quality and quantity for a price agreed today with delivery occurring at a specified future date. In other words a future contract is a legally binding agreement to buy/ sell a commodity /financial instrument sometime in the future at a price agreed upon at the time of trade. While actual physical delivery of the underlying commodity seldom take place, futures contract are standardized according to delivery specifications including the quality, quantity and time and location. The only variable is price which is decided through trading process.The trading of futures contract takes place in a futures exchange or futures market or commodity market. Trading of any commodities can be through two ways either spot trading or forward trading. Futures trading are a type of forward trading. Spot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. Spot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets. Commodity markets, on the other hand, require the existence of agreed standards so that trades can be
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made without visual inspection. Spot price is the price that is quoted for immediate settlement. Spot Market is a public market in which commodities are traded for immediate delivery. A spot market can be an organized market or an exchange. Forward trading is the trading through forward contracts and forward contract is a non standardized agreement or contract between two parties to exchange at some fixed date a given quantity of a commodity for a price defined today . The price agreed upon is called delivery price, which is equal to the forward price at the time the contract is entered into. A futures contract has the same general features as a forward contract but is transacted through futures exchange as a forward contract. Forward contracts have evolved and have been standardized into what we know today as futures contract.
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Origin of Futures Trading Origin of forward contract is not known. However it is known that forward contracts were used in rice in seventeenth century Japan. Modern forward / futures agreement began in Chicago in 1840s, with appearance of rail roads. Chicago being centrally located emerged as the hub between Midwestern farmers and producers and the east coast consumers’ population centers. Grain dealers in Illinois were having trouble financing their grain inventories. The risk of grain prices falling after harvest made lenders reluctant to reduce the risk exposure, grain and grain dealers began selling “To Arrive” contracts which the future specified the future date (usually the month) a specific quantity in the contract. This reduced their risk exposure and made it easier to obtain credit to finance. The “to Arrive” contracts were a forerunner of the futures contracts traded today. Although dealers found it advantageous to trade what essentially were forward cash contracts in various commodities, they soon found these forward cash contract markets inadequate and formed futures exchanges. The first futures exchange was the Chicago Board of Trade (CBT), formed in 1848. From there on many futures exchanges were established throughout the world in the decades that followed. The major commodity exchanges for Agriculture commodities are Chicago Board of Trade, Dalian Commodity Exchange, Kansas City Board of trade, Minneapolis Grain Exchange, National Commodity and Derivative Exchange India, for grains and oilseeds ; Chicago Mercantile Exchange for Livestock, etc.
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History of futures trading in India Commodity futures trading in Indian is almost as old as that in the United States. India’s first organized futures market was that Bombay Cotton Trade Association Ltd, which as set up in 1875. Futures trading in oilseeds started with the setting up of Gujarati Vyapari Mandal in 1900. Gold futures trading began in Mumbai in 1920. During the first half of the 20th century there was several commodity exchange trading in jute, pepper, turmeric, potatoes, sugar, etc. The futures market in India underwent rapid growth between the period of First and Second world wars. As a result, before the outbreak of the Second World War, a large number of commodity exchanges trading futures contracts in several commodities like cotton, groundnut oil, saw jute, jute goods, castor seed, wheat, rice, sugar, and precious metals like gold and silver were flourishing throughout the country. In view of the delicate supply situation of major commodities in the backdrop of war efforts mobilization, futures trading came to be prohibited during the Second World War under Defense of India Act. After independence especially in the second half of 1960s the commodity futures trading again picked up and there were thriving commodity markets. However in 1966 the commodity trading in several commodities like cotton, jute, edible oilseeds, etc. came to be banned and future trading continued only in pepper and turmeric, as the government felt that there markets were increasing the price and also there was widespread shortage of essential commodities. A select few commodities saw a reintroduction of futures in 1980 following the Khusro committee’s report. All that began to change with liberalization of the Indian
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economy in the early 1990’s. In 1993 the Khabra committee was appointed to look into forwards markets. The committee recommended in 1994 that all futures banned in 1966 be introduced as well as many others added. Six years later, the National Agricultural Policy 2000 envisioned the removal of price controls in agricultural markets and widespread use of futures contracts. Since its establishment in 1995, the separate Department of Consumer Affairs, Food and Public distribution has been working at the promotion of futures trading. In pursuance there of Government of India, by a notification dated 1.4.2003 permitted additional 54 commodities for futures trading. The National Multicommodity Exchange of India limited (NMCE), Multicommodity Exchange of India Limited (MCX) and National Commodity and Derivatives Exchange Limited (NCDEX), have been working since 26th November 2002, 10th November 2003, and 15th December 2003. Currently there are five major national level commodity exchanges and 16 regional exchanges operating in India. Table 1:The five major National level commodity exchanges Commodity Exchange Commodities RBD Pamolein, Groundnut Oil,
National Multicommodity Exchange of Gur, India limited (NMCE), Ahmedabad
Sunflower Oil, Rapeseed/Mustardseed, its Oil, oil-Cake, Soy bean, Soy Oil, Copra, CottonSeed, Safflower, Groundnut, Sugar, Sacking, Coconut oil, Castorseed, Castoroil, Groundnut oilcake, Cottonseed oil,
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Sesamum (Til or Jiljili), Sesamum oil, Sesamum OilCake, Safflower OilCake, Rice Bran Oil, Safflower Oil, Sanflower OilCake, Sunflower Seed, Pepper, Crude Palm Oil, Guarseed, CastorOil Cake,
Cottonseed – Oilcake, Vanaspati, Soybean Oilcake, Rubber, , Linseed Oil, Linseed, Oilcake, Coconut Oilcake Rice, Wheat, Cardamom, Masoor, Urad, Tur / Arhar, Moong, Rapeseed – 42, Raw Jute
RBD Pamolein, Groundnut Oil, Pepper Multicommodity Exchange of India Domestic-MG1, Soy bean, Kapas,
Limited (MCX),Mumbai
Castorseed, Castor-oil, Crude Palm Oil, Guarseed, Cottonseed – Oilcake, Rubber, Rice, Wheat, Ref Soya oil – Indore, Urad, Tur / Arhar, Castorseed-5 , Yellow Peas, Long Staple Cotton, Medium Staple Cotton
National
Commodity
and
Derivatives S06 L S Cotton, J34 M S Cotton, Crude Palm oil, RBD P'Olein, EXP R/M oil, Rape/Mustard seed, Ref Soya oil, Soy bean,
Exchange Limited (NCDEX), Mumbai
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Rubber, Pepper, Gram(Chana), Guarseed, Jute, Turmeric, Castorseed, Raw Jute, Guar Gum, Sugar M Grade, Urad, Sugar S Grade, Yellow Peas, Wheat SMQ, Soy Meal
Indian
Commodity
Exchange Mustard oil, soy oil, Raw jute, Mentha oil
Limited(ICEX), New Delhi
Ace
Derivatives
and
Commodity Castor seed, mustard seed, Refined soy oil, soy oil, Channa, turmeric, Sugar, Guar seed, guar gum
Exchange limited (ACE), Ahmedabad
Table 2: 16 regional commodity exchanges Commodity Exchange Commodities
Bikaner Bikaner
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commodity
Exchange
Ltd., Mustard seed its oil & oilcake, Gram. Guar seed. Guar Gum
The Bombay Commodity Exchange Ltd., Oilseed Complex Mumbai The Chamber of Commerce, Hapur Central India Commercial Exchange Ltd., Gur and Mustard seed Gwalior The East India Cotton Association Ltd., Cotton Mumbai The East India Jute & Hessian Exchange Hessian & Sacking Ltd., Calcutta The First Commodities Exchange of India Copra/coconut, its oil & oilcake Ltd., Kochi Haryana Commodities Ltd., Hissar Mustard seed complex * Castor oil international contracts Gur , Potatoes and Mustard seed
India Pepper & Spice Trade Association, Pepper (both domestic and international Kochi (IPSTA) The Meerut Agro Commodities Exchange Gur Ltd., Meerut Soya seed, Soyaoil and Soya meals. National Board of Trade, Indore Rapeseed/Mustard seed its oil and oilcake and RBD Palmolien ( see table 3) Castor seed, Groundnut, its oil & cake, Rajkot Seeds, Oil & Bullion Merchants cottonseed, its oil & cake, cotton (kapas) Association, Rajkot and RBD palmolein. Rajdhani Oils & Oilseeds Exchange Ltd., Gur, Mustard seed its oil & oilcake
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contracts)
Delhi Surendranagar Cotton Oil & Oilseeds , Cotton, Cottonseed, Kapas Surendranagar The Spices & Oilseeds Exchange Ltd., Turmeric Sangli. Vijai Beopar Chambers Ltd., Gur, Mustard seed Muzaffarnagar
Contribution of commodity exchanges to Indian GDP was 1.2 percent in 1999 and this went upto 10percent in 2007-08. The growth in the volume of trade was 823 percent from 2001-01 to 2010 -11.
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Characteristics of commodities permissible under futures trading The commodities permissible under future trading must satisfy the following conditions i) Commodities should be in plentiful supply. If a commodity is in short supply, a few traders may corner the whole supply and charge any price they like to the buyer. ii) The commodity should be homogenous and capable of being graded so that its future deliveries may be made without problems regarding quality. iii) The commodity must have minimum perishability i.e. it must be storable for future delivery. iv)The commodity should have a large demand from a number of independent consumers so that a single buyer may not be in a position to impose his terms for his purchase. v) The supply of the commodity should not be controlled by a few large firms. It should be available with a large number of suppliers. vi) The price of the commodity should be liable to fluctuations over a wide range vii) There should be free flow of the commodity to and from the market without any outside interference/ control.
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Futures price Futures prices evolve from the interaction of bids and offers emanating from all over the country. The bid and offer prices are based on the expectations of prices on the maturity date. In determining the futures price, market participants compare the current futures price to the spot price that can be expected to prevail at the maturity of the futures contract. In other words, futures markets are forward looking and the futures price embeds expectations about the future spot price. If spot prices are expected to be much higher at the maturity of the futures contract than they are today, the current futures price will be set at a high level relative to the current spot price. Lower expected spot prices in the future will be reflected in a low current futures price (Black, 1976). Inventory decisions link current and future scarcity of the commodity and consequently provide a connection between the current spot price and the expected future spot price. Two methods generally used for predicting futures prices are fundamental analysis and technical analysis. The fundamental analysis is concerned with basic supply and demand information, such as, production and consumption, import and export patterns, weather conditions, and relevant policies of the government like taxation. Technical analysis includes analysis of movement of prices in the past. Many participants use fundamental analysis to determine the direction of the market, and technical analysis to time their entry and exist. An important part of understanding futures and cash price dynamics is being able to explain and anticipate cash/futures basis movement. Basis is normally calculated as
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cash price minus the futures price. As the futures contract approaches its maturity date, the difference between the two prices gets smaller as the cost of carry becomes smaller. At maturity, the difference between the two diminishes to zero because spot and futures prices converge. While spot and futures prices might significantly diverge over the life of the futures contract, futures prices have to converge to spot prices once the contract expires. This theoretical connection between the spot and the futures prices is a long-run, rather than a short-run, concept. In the short-run, there might be deviations between spot prices and futures prices caused by thin trading, lags in information transmission, insufficient inventory levels, seasonal patterns of consumption and many such factors, which may cause the markets to function inefficiently. But, in the long-run, spot and futures prices are driven by the same fundamentals, such as interest rates, macroeconomic variables and oil reserves, because futures prices represent nothing but the expectations of the future spot prices of the physical commodity. Thus we should expect spot and futures prices for any commodity to be linked through a long-run equilibrium relationship.
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Procedure of trading Initially the person (farmer/trader/exporter, etc.) interested in doing futures trading, will have to take a commodity account. Then he has to choose a broker who already has membership with the commodity exchange. He can also get list of members from the exchange and choose from them. He will have to enter into a normal account agreements with the broker. The person starts the trading by paying the margin which is prescribed for the commodity which he is intended to trade on. There is minimum and maximum limit of quantities of commodities which has to be traded by a person. Also he has to make it clear at time of contract (buying or selling), whether delivery is intended or not. There can be cash settlement or physical delivery. At the maturity of the contractor or end of settlement, profit or loss or the due date rate are either credited or debited to the account. The settlements are carried out by the clearing house. Table 3: Some commodities with their trading unit and delivery centres Commodities Exchange Unit of trading/ delivery Pepper Pepper NCDEX NMCE unit 1000kg =1MT 1 MT Rs/ Quintal Rs/ Quintal 50 MT 50 MT CWC Warehouses located in
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Quotation/ Base value
Maximum Delivery centres order size
Kochi, Calicut , Trissur
Cochin/Ernakulam, Kottayam, Calicut, Malapuram & Rubber MCX 1MT Rs/ Quintal 50 MT Trissur Cochin, Calicut, Trissur, Kottayam, Manjeri, Palghat, Thodupuzha, Pala, Muvattupuzha, Chalakudy,Irritty, Rubber NMCE 1MT Rs/Quintal 50 MT Mangalore Kochi, Calicut, Kottayam, Rubber NCDEX 1 MT Rs/ Quintal Cardamom NMCE 100 kg Rs/Kg 5000kg Malappuram, Trissur Calicut, kottayam, Thrissur, Manjeri, Palakkad Vandanmedu, Idukki
Cardamom
MCX
100 Kg
Rs/Kg
5000kg
Vandanmedu, Idukki district & Bodinaykannur,
Copra Coffee
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NMCE NMCE
1MT 1500kg
RS/Quintal Rs/Quintal
Madurai district Calicut Kushalalnagar(coorg),
HassanAnd Chikmagalur in Karnataka, Kalpetta
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Role of clearing house Clearinghouse is the organizational set up adjunct to the futures exchange which handles all back-office operations including matching up of each buy and sell transactions, execution, clearing and reporting of all transactions, settlement of all transactions on maturity by paying the price difference or by arranging physical delivery , etc., and assumes all counterparty risk on behalf of buyer and seller. It is important to understand that the futures market is designed to provide a proxy for the ready (spot) market and thereby acts as a pricing mechanism and not as part of, or as a substitute for, the ready market. The buyer or seller of futures contracts has two options before the maturity of the contract. First, the buyer (seller) may take (give) physical delivery of the commodity at the delivery point approved by the exchange after the contract matures. The second option which distinguishes futures from forward contracts is that the buyer (seller) can offset the contract by selling (buying) the same amount of commodity and squaring off his position. For squaring of a position, the buyer (seller) is not obligated to sell (buy) the original contract. Instead, the clearinghouse may substitute any contract of the same specifications in the process of daily matching. As delivery time approaches, virtually all contracts are settled by offset as those who have bought (long) sell to those who have sold (short). This offsetting reduces the open position in the account of all traders as they approach the maturity date of the contract. The contracts, if any, which remain unsettled by offset until maturity date are settled by physical delivery. The clearinghouse plays a major role in the process explained above by intermediating
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between the buyer and seller. There is no clearinghouse in a forward market due to which buyers and sellers face counterparty risk. In a futures exchange all transactions are routed through and guaranteed by the clearinghouse which automatically becomes a counterpart to each transaction. It assumes the position of counterpart to both sides of the transaction. It sells contract to the buyer and buys the identical contract from the seller. Therefore, traders obtain a position vis -à-vis the clearing house. It ensures default risk-free transactions and provides financial guarantee on the strength of funds contributed by its members and through collection of margins marking-to-market all outstanding contracts, position limits imposed on traders, fixing the daily price limits and settlement Guarantee fund. The organizational structure and membership requirements of clearinghouses vary from one exchange to the other. The Bombay Commodity Exchange and Cochin pepper exchange have set up separate independent corporations (namely, Prime Commodities Clearing Corporation of India Ltd, and First Commodities Clearing Corporation of India Ltd., respectively) for handling clearing and guarantee of all futures transactions in the respective exchanges.
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Margin Margins (also called clearing margins) are good faith deposits kept with a clearinghouse usually in the form of cash. They range from 5- 15% of the trade value. There are three types of margins to be maintained by the trader with the clearinghouse: initial margin and maintenance or variation margins. Initial margin is a fixed amount per contract and does not vary with the current value of the commodity traded. Margins are deposited with the clearing house in advance against the expected exposure of the trading member on his account and on account of the clients. This amount in turn is collected from the clients by the member who executes trade for them. Generally, the margin is payable on the net exposure of the member. Net exposure is the sum of gross exposure (buy quantity or sale quantity, whichever is higher, multiplied by the current price of the contract) on account of trades executed through him for each of his clients and gross exposure of trades carried out on his own account. However, for squaring-off transactions carried out only at the clients’ level, fresh margins are not required. The margin is refundable after the client liquidates his position or after the maturity of the contract. Maintenance margin which usually ranges from 60 to 80 per cent of initial margin is also required by the exchange. Variation margin is to compensate the risk borne by the clearinghouse on account of price volatility of the commodity underlying the contract to which it is a counterparty. A debit in the margin account due to adverse market conditions and consequent change in the value of contract would lead to initial margin falling below the maintenance level. The clearinghouse restores initial margin through
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margin calls to the client for collecting variation margin. In case of an increase in value of the contract, marking-to-market ensures that the holder gets the payment equivalent to the difference between the initial contract value and its change over the life time of the contract on the basis of its daily price movements. If the member is not able to pay the variation margin, he is bound to square off his position or else the clearing house will be liquidating the position. The margins have important bearing on the success of futures. As they are noninterest bearing deposits payable to the clearinghouse up-front working capital of any trading entity gets blocked to that extent. While a higher margin requirement prevents traders from participating in trading, a lower margin makes the clearinghouse vulnerable to any default due to its weak financial strength otherwise. Internationally, many developed exchanges maintain a low margin on positions due to their better financial strength along with massive volume of trade resulting in large income accruing to them.
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Participants in the Commodity Futures Market There are three broad categories of participants in the futures markets, namely hedgers, speculators and arbitragers. Hedgers are those who have an underlying interest in the specific adverse price fluctuations. Example could be stockiest, exporters, producers, etc. They require some people who are prepared to accept the counter party position. Speculators are those who may not have an interest in the ready contracts i.e., the underlying commodity, etc. but see an opportunity of price movement favourable to them. They provide depth and liquidity to the market. While some hedgers from demand and supply side may find matching transactions, they by themselves cannot provide sufficient liquidity and depth to the market. Hence, the speculators who are essentially expert market analysers take on the risk of hedgers for future profits and there by provide a useful economic function and are an integral part of the future market. It would not be wrong to say that in the absence of speculators, the market will not be liquid and may at times collapse. Arbitrageurs are those who take simultaneous sale and purchase in two markets so as to take and benefit from price imperfections. In the process they help, remove the price imperfections in different markets. For example, the arbitrageurs help in bringing the prices of contracts of different months in a commodity in alignment.
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Hedging and speculation Hedging is a trading technique of transferring the price risk. It protects from extreme crash in prices. Hoffman defines Hedging as the practice of buying or selling future to offset an equal and opposite position in the cash market and thus avoid the risk of uncertain changes in prices. It protects the hedger from sustaining loss and enables him to earn his normal trade profits. One example should make the operation and logic of hedging clear. Suppose, a pepper trader contracts a deal with some overseas firm in October 2011 to supply 100 Kg of black pepper at price of Rs 36850 per lot to be shipped in December 2011. In order to protect himself from a possible loss he buys pepper futures at a ruling price of say Rs 37100 per lot. Now in the month of Dec 2011, he discovers that the ruling spot price of cotton is Rs 37800 per lot. As he had contracted to ship 1000 quintals at a price of Rs 36850 he loses Rs 950 on this deal. But the future price also has moved up to Rs 38050 per lot in sympathy with the spot / ready or cash prices. He sells cotton futures at Rs 38050 (which he has purchased at Rs 37100 per lot) and gains Rs 950 per quintal. This way, his loss on the spot or ready or cash market is compensated by the gain in futures market. The fundamental idea under speculation is the purchase or sale of a commodity at the present price with the object of sale or purchase at some future date at a favourable price. The speculator is normally concerned with profit making from price movements.
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The difference in the prices prevailing at two times constitutes his profit .expect in a few cases; the physical delivery of produce is neither taken nor given. Only difference in the prices is paid or taken. Speculators buy at a current price in anticipation of a rise in prices in the future which results in pushing up the current prices. This encourages production and discourages consumption. Other speculators, who sell in the present period in the expectation of a fall in the future prices, bring about a fall in the current prices, which encourages consumption and discourages production. The sum totals of the effects of these speculative activities result in dampening price fluctuations. .
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Delivery The exchange may prescribe tender days and delivery period for each contract month during which a seller who wishes to tender delivery may issue delivery orders through specific clearing members. Tender days and delivery period end on or before the last day of trading of the relevant contract month. All contracts outstanding at the end of the last trading day of the contract month of the maturing contract will be closed-out at the due date rate as per the contract specifications. The relevant authority prescribes a penalty on sellers with outstanding positions who fail to issue delivery orders; the exchange may financially compensate the buyers who hold outstanding positions and intended to lift delivery but could not receive delivery orders against such positions due to a failure on the part of the seller. In Case of Cash Settlement The buyer who fails to accept delivery orders is required to pay the difference between the settlement price and the due date rate. In addition, the buyer will have to pay a penalty, as ascertained by the exchange. The seller, who tenders the delivery document, is compensated with the penalty recovered from the buyer, while the delivery is returned to the seller. Failure to pay the dues and penalties relating to such closing out within the stipulated period causes the member to be declared a defaulter, and renders him liable for disciplinary action.
In Case of Physical Delivery
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An exchange member desiring to tender goods against an open short position in the maturing contract sends delivery orders to the clearing house through the clearing member up to such time on the stated tender days. The delivery order forms duly signed by the sellers or seller’s representative, holding short open positions, should offer the following particulars, in addition to the particulars in the delivery order: _ the quality and quantity of goods to be delivered _ delivery order rate (to be filled in by the clearing house) _ name of the seller issuing the delivery order _ period of delivery _ the address or addresses of the warehouse(s) or any storage place where the goods are kept and the quantity there of at each warehouse _ the name and address of the seller’s representative who should be contacted by the buyer for collecting the delivery A seller is entitled to offer delivery only at the exchange determined the delivery centers. The delivery can be tendered at these specified centers, strictly as per the contractual delivery procedure. Before tendering delivery, the seller is also required to obtain a certificate from a surveyor empanelled by the exchange and this certificate has to be accompanied with the delivery order being tendered to the clearing house. The surveyor’s certificate clearly specifies the quality of the goods tendered and also confirms that such quality is tenderable as per the contract specification of the exchange. In case of non-compliance with any of these conditions, the delivery order is rejected and initiate
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clearing members shall, in turn, assign the full quantity of goods covered by the delivery orders to their clients holding outstanding long positions.
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Some initiatives to involve farmers The commodity futures was even though formed for providing hedging facility for farmers, the speculators form the major group of participants. There were few initiatives by the Multicommodity exchange of India to involve and create awareness among farmers. MCX and India Post formed a strategic alliance to create rural service centers, ‘Gramin Suvidha Kendra’ (GSK) aimed to ensure benefits of commodity exchanges’ reach the recesses of rural India, through a single-window service for farmers’ pre- and post-harvest requirements. By providing price information, GSK benefits farmers by helping them decide what to sow and when to sell. GSK also provides services such as addressing technical queries, scientific warehousing facilities, and quality agri/ non-agri inputs and bank loans. A pilot project was undertaken in Surendranagar, in Maharashtra involving 67 cotton growers. This multi-stakeholder pilot project was enabled by associations among a number of institutional entities namely Sajjata Sangh, Aga Khan Rural Support Programme India [AKRSP(I)], Multi Commodity Exchange (MCX), National Bank for Agriculture and Rural Development (NABARD), Cardinal Edge Management Services and a Farmer’s Federation from Chotila taluka of Surendranagar. The main activities planned under this initiative were access to market information, awareness creation & training; institutional development, formation of linkages with professional service providers and institutions; adoption and trial of price hedging through commodity derivatives, validation and reconfiguration of existing commodity derivative contracts.
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Based on the insights from this project, the following institutional structure design was developed for future projects.
The first-tier of collective organization will be at an individual futures contract level where either an individual participant or his representative will act on his behalf for communicating trading decision information upwards. At the second-tier, the participants in a collective hedging program must organize themselves ideally at a village level to ensure smooth flow of market information downwards from the more informed stakeholders and trading decision information upwards from the individual participant or the representative designated by the joint participants under a common futures contract. The village level representatives may be federated at a higher-tier (third-tier/apex-level) for coordination, monitoring, course correction, and evaluation. The program is collective only in the sense of aggregating the technical support and other service requirements associated with hedging. The decision-making may however be completely decentralized and individual-futures-contract-based in order to delegate responsibility to participant(s) in an individual futures contract for its/their own gains or losses. The margin
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requirements and corresponding futures trading operations have to be likewise managed by participant(s) in any individual futures contract.
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Economic Functions: In a free market economy, Futures trading performs two important economic functions, viz., price discovery and price risk management. commodities is useful to all sectors of the economy. The forward prices give advance signals of an imbalance between demand and supply. This helps the government and the private sector to make plans and arrangements in a shortage situation for timely imports, instead of having to rush in for such imports in a crisis-like situation when the prices are already high. This ensures availability of adequate supplies and averts spurt in prices. Similarly, in a situation of a bumper crop, the early price signals emitted by futures market help the importers to defer or stagger their imports and exporters to plan exports, which avoid glut situations and ensures remunerative prices to the producers. At the same time, it enables the importers to hedge their position against commitments made for import and exporters to hedge their export commitments. As a result, the export competitiveness of the country improves. Benefits of futures market The primary benefit of futures markets is to allow for anticipatory hedging in a free-market price regime. By taking a position in the futures markets that is opposite to that held in the spot market, the producer can potentially offset losses in the latter with gains in the former. Futures markets thus offer a mechanism for dealing with price risk.
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Such trading in
Futures markets also play a role in inventory management. The basis or price spread, which is the price difference between futures contracts of different maturities, signals the availability of stocks to the market. In essence, the basis is a measure of storage and interest costs that must be borne by a spot market trader in holding stocks now, for sale at some point in the future. Clearly, as the basis gets larger, the incentive to store increases; as a result, the level of inventories held in the spot market will be determined by the basis. This ensures an efficient process of private storage and in turn leads to a smoother pattern of prices in the spot market and hence can, potentially, reduce price volatility. Futures markets can also provide price support for credit needs to small producers. In fact, better access to credit has been driving demand for commodity price hedging in the developed market economies. The collateral value of inventory is substantially enhanced if it is hedged, enabling firms (/farmers) to borrow a larger proportion of inventory value on more attractive terms. There are other wider benefits to the economy of a more efficient allocation of resources that could arise from establishing or using futures markets. When a commodity is produced and then sold on a spot market, there is considerable risk that in the time between a production decision being taken and the output being sold, prices could have moved against the trader. This spot price risk creates problems for producers who do not know what their income levels will be and this hinders their planning process. An efficient futures market provides reasonably accurate indications of the future spot price and thus helps in production planning.
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Derivative market helps to keep a stabilising influence on spot prices by reducing the short-term fluctuations. In other words, derivative reduces both peak and depths and leads to price stabilisation effect in the cash market for underlying asset.
Benefits to the farmers and other stakeholders: Farmers and growers also benefit through the price signals emitted by the futures markets even though they may not directly participate in the futures market. The futures markets, through advance price discovery lead to a shift in sale-purchase patterns during harvest and lean seasons and thereby facilitate reduction in the amplitude of seasonal price variation and help the farmer realize somewhat better price at the time of harvest. These price signals help the farmer in planning his cultivation in advance as well as to determine the kind of crop which he should prefer to raise. These signals also help him in fine tuning his marketing strategy after the harvest. Empowered with the price information the farmer is able to avoid excess sale immediately after the harvest and is also able to bargain for better prices from trade in the mandi. By providing the manufacturers and the bulk consumers a mechanism for covering price-risks, the futures market induces them to pay higher price to the producers, as the need to pass on the price-risk to farmers is obviated. The manufacturers are able to hedge their requirement of the raw materials and as also their finished products. This results in greater competition in the market and ensures viability of the manufacturing units. Constraints to farmers and other stakeholders
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Regulatory Constraints The foremost regulatory constraint with respect to participation of farmers (particularly small and marginal farmers) on commodity exchange are the procedural hurdles (PAN card requirement, KYC norms compliance, burdensome paperwork etc) for opening a Demat /trading/bank account. Restriction on participation of financial
institutions (Banks, Mutual Funds, FIIs) also undermines the liquidity on commodity exchanges and allows trading on many contracts to be exposed to price manipulation and market cornering. The bans/suspensions on futures trading in commodities of strategic importance have shaken the confidence of common citizens and physical market players in the price risk management effectiveness of commodity derivatives. Lack of useful risk management instrument like options which have proved to be of immense value in managing risks of farmers and physical market players in other countries restrains potential hedgers in India by making them vulnerable to the unlimited downside risk inherent in futures trading. Policy Constraints Policy interventions by the Government have a momentous impact on the direction and magnitude of price movements in commodities. Abrupt policy changes by the Government generally result in upsetting the market equilibrium leading to the shift of balance in favor of one or the other counterparty. Uncertainty of Government interventions acts as a dissuading influence on genuine market participants (including hedgers) and weakens the free-market behavior of commodity markets. Institutional Constraints
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The procedural requirements and the technical complexities involved in commodity derivatives trading necessitate the presence of institutional entities which can act as technical support providers for farmer participation on commodity exchanges. Grassroots organizations like NGOs, cooperatives, agribusiness companies, farmer organizations have the ability to serve as technical support providers but given their existing under-preparedness and limited capacities for managing price risk management initiatives, the fruits of promising initiatives for improving commodity markets in India may not reach the intended beneficiaries especially the disadvantaged farmers. Hedging the prices of the forthcoming harvest through futures trading requires the farmer to pay in the initial margin and Mark-to-Market (MTM) margin upfront. Such requirement is extremely constraining for farmers keen to hedge their price risks and calls for funding through institutional financing mechanisms.
Dangers of Future market The dangers arising out of the futures market are: i) The futures market opens out the way for a large number of persons with sufficient means, inadequate experience and information to enter into commitments which may be beyond their means. In such conditions, market gets demoralized. ii) It enables unscrupulous speculators, with little interest in the actual supply of, demand for, a particular commodity, to corner the supplies and organize bear raids and bull raids on the market in the hope of making easy money for themselves. This results in violent fluctuations in price.
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iii) Futures trading are sometimes being quoted as the reason for inflation.
Futures trading causing inflation? A few recent studies showed that there is no sufficient evidence to suggest that futures trading leads to inflation. Trading in commodity derivatives on exchange platforms is an instrument to achieve price discovery, better price risk management, besides helping macroeconomy with better resource allocation. Though the volume of commodity futures trade increased exponentially after the withdrawal of prohibition in 2003, the functioning of futures markets came under scrutiny during 2006–07 due to price rise and the government has proposed to impose transaction tax by 0.017 per cent on trading volume in the 2008–09 budget. In this context, the efficiency and futures trading-price nexus for five top selected commodities namely gold, copper, petroleum crude, soya oil, and chana (chickpea) in commodity futures markets in India were examined. Results suggest that the commodity futures market is efficient for all five commodities. Further, we do not have sufficient evidence to support that futures market leads to higher inflation. (Sahoo and Kumar, 2009) Of the four commodities (Rubber, Chickpea, potato, soy oil) banned in 2007, only price of potato decreased that was due to bumper crop (Sreenivasan, 2008) Kiran Karande through his study in 2006 concluded that the castor seed futures market at Mumbai and Ahmedabad performs the function of price discovery. Also, the
36
introduction of castor seed futures market has had a beneficial effect on castor seed spot price volatility. Thus, there is a strong case for promoting derivative markets in India. The daily price information in spot and futures markets, for a period of 7 years (2004 – 2010), for 9 major agricultural commodities, taken from different categories of agri-products, are incorporated into various econometric models to test the concerned objective. The empirical findings significantly shows that comparative advantage of futures market in disseminating information, leading to a significant price discovery and risk management, that can again help to successfully develop the underlying commodity market in India. Therefore instead of curbing the commodity futures market, it can always be suggested to strengthen the market structure to achieve the broader target. (Mukherjee, 2011) Using dummy variables, the study done by Nath and Lingareddy in 2008 found that the introduction of future trading in the selected commodities had apparently led to increase in price of commodity like urad but the same is not true for wheat and gram. The spot prices of all three commodities under study have increased in the post futures period though except for urad, the dummy variables are not found statistically significant. The spot prices of these commodities declined after the ban on futures trading was introduced. However, the price volatility increased significantly during the period when futures were allowed. There has been a sharp fall in volatility after the ban of futures in these commodities. Although gram prices too have posted a moderate rise in the post-futures trading period, the impact was not found statistically significant. Although a similar increase was observed in case of wheat, steep fall in supply coinciding the same period
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thus bringing ambiguity in the inference. The study also finds that the introduction of futures in commodities under our study has not affected the seasonal/cyclical fluctuations of the commodities under our study. But a study done by Eashwaran and Ramasundaram 2008 contradictorily found that price discovery doesn’t take place in agriculture commodity futures. Thin volume, low market depth, infrequent trading lack of effective participation of trading members, lack of awareness among farmer, no well developed spot market in vicinity of futures market, poor physical delivery, absence of well developed grading and standaradization system and market imperfection were reasons stated. Conclusion Large participation of farmers and local traders is essential to realize the objectives of futures trading. As the rule of thumb 50 percent delivery should be taking place. But the actual delivery is only around 2 percent. This shows that the growth attained will not remain if sustainable measures are not taken. Therefore NGO’s, cooperatives, and famers organization should be motivated and trained in doing futures trading. Government should setup modern warehouses in the villages which can facilitate the trading. The regulatory and policy measure suitable for futures trading should be taken by the government, thus facilitate a transparent and efficient price discovery. Only this can propel the commodity futures trading and the economic functions of price discovery and avoidance of price risk would be proper.
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Discussion 1. How can the small farmers be benefitted by this future trading? Small farmers can form cooperatives or farmers group and collectively trade through the futures market. Margin and profit or loss should be shared. 2. Can’t the speculators or traders collectively try to decrease or increase the price of commodities according to their wish? It is possible if the participation of farmers is low. We need to increase the farmers and traders participation to maintain the efficient functioning of the commodity market. 3. Is there any place where farmers are actively involved in futures trading through cooperatives or NGO? Yes, in Kerala, Pala marketing cooperative society is actively involved in futures trading of rubber. 4. What is margin for crops like pepper, cardamom, and rubber? It is decided by exchange based on the price of commodities fluctuations in the price and risk associated with it. It keeps on changing. 5. How will the people involved decide the price beforehand? Traders or speculators associated with the futures trading through fundamental and technical analysis find the availability of commodity or what will be the production and flow of commodities to market and accordingly arrive at a price. 6. Isn’t the procedure of trading complex for ordinary farmers?
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Yes it is initially. But they can be trained. There should active involvement of NGOs in this field also. Training should be provided to NGOs and personnel from the NGOs can act as technical support to farmers along with training them. 7. Can we know futures price through any other source? Yes there is provision of live market watch through the websites of every national exchange. 8. What role does the commodity market play or how will the price determined when some natural calamity occurs? When calamity occurs, and if it affects crop production, naturally there will be dearth of the commodities so the price of commodities increase. Farmers can benefit from high price. 9. What if the farmer loses his crop in the above mentioned situation? Then futures trading have nothing to do with that. Government will provide the farmers with relief fund. 10. The recent surge in cardamom price, is there any role of speculators in that? Not sure about that, could not get any article supporting that view. 11. If there is high demand for commodity for export, will it lead to rise in price? Won’t it affect the domestic consumers? Yes, definitely the price will increase there is an increased demand for export but if it eventually affect the consumer then the government will restrict/ ban the export. Recently the export of rice was banned by the government.
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References Acharya,S.S. and Agarwal,N.L. 2004. Agricultural Marketing in India (4th Ed.).Oxford and IBH Publishing Co. Pvt. Ltd., New Delhi, 506p. Annual report 2009-2010. Forward Market Commisssion. Ministry of Consumers, Food and Public administration. Government of India Ahuja, N. L. 2005. Commodity Derivatives Market of India: Development, Regulation and Future prospect. Available: http://www.aryanhellas.com/107/na.pdf Atkin, M. 1989.Agricultural Commodity Markets: A Guide to Futures Trading. Routledge, New York. 249p. Baskara M. 2007. Commodity futures trading in India: A role of national commodity
exchanges. MBA (agri-business) thesis. University of Agricultural Sciences, Dharwad.154p. Bose, S. 2008. Commodity Futures Market in India: A Study of Trends in the Notional Multi-Commodity Indices. Money & Finance, ICRA Bulletin, 3( 3): 126-158. Cardinal management services (P) LTD. 2008. Enabling farmers to Leverage Commodity Exchanges. Final Report submitted to Multicommodity Exchange of India Ltd.Mumbai. Chakrabarti, R. 2005. Commodity Futures in India. Social Science Research Network.
Available at SSRN: http://ssrn.com/abstract=649856 Easwaran S. R. and Ramasundaram P. 2008. Whether commodity Futures Market in Agriculture is efficient in Price discovery ? – An Econometric Analysis. Agricultural
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Economics Research Review. 21: 337-344 FMC [Forward Market commission]. http://www.fmc.gov.in [28 Sept 211]. Karande, K. 2006. A study of Futures Market in India. PhD thesis. Indira Gandhi Institute of Development Research, Mumbai. Social Science Research Network. Available at SSRN: http://ssrn.com/abstract=983342 Kumar B., Singh P. and Pandey A.2008. Hedging effectiveness of constant and time varying Hedge Ratio in Indian stock and commodity Futures market. Research Publications. W. P. No. 2008-06-01. IIM, Ahmedabad MCXINDIA [Multicommodity Exchange of India]. 2011. MCXINDIA homepage [online] Available: http://www.mcxindia.com[28 Sept 2011]. Mintert, J., Waller, M. and Borchardt, R. 1998. Introduction to futures market. Western Risk Management Library (on line) Available : (18 2011. FMC homepage[online].Available:
http://agecon.uwyo.edu/riskmgt/marketrisk/IntroductiontoFuturesMarkets.pdf Sept. 2011)
Mishra, A. K., 2008.Commodity Futures Markets in India: Riding the Growth Phase. Proccedings of an International Conference on Commodity Future: Riding the Growth Phase. Social Science Research Network Available:
http://ssrn.com/abstract=1090843 Mukherjee, K. N. 2011. Impact of futures trading on Agricultural Commodity Market. Social Science Research Network. Available at SSRN: http://ssrn.com/abstract=1763910
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Nath, G. C. and Lingareddy, T. 2008. Commodity Derivative Market and its Impact on Spot Market. Social Science Research Network. Available: SSRN:
http://ssrn.com/abstract=1087904 NCDEX [National Commodity Derivative Exchange ]. 2011. NCDEX homepage[online] Available: http:/www.ncdex.com [29 Sept 2011] NMCE [National Multicommodity Exchange]. 2011. NMCE homepage[online] Available: http://www.nmce.com[29Sept 2011] NFA [National Futures Association]. 2006. Opportunity and Risk: An Educational guide to Futures Trading and Options on Futures. NFA, Illinois. 96p. Available: http://www.nfa.futures.org/nfa-investor-information/publication-library/opportunityand-risk-entire.pdf Pawan, D. and Nagpal, M. 2010. Is the Pepper Commodity Market Efficient: A
Cointegration Analysis. Summer Internship Project. Centre for public policy. Indian Institute of Management, Bangalore Pradeep Unni (
[email protected]). 2011, Sept 20. Commodity Markets – Future of Futures Market [Personal email, accessed on 20 Sept. 2011] Roy, A. 2005. Dynamics of spot and future markets in Indian wheat Market: Issues and Implications. Social Science Research Network. Available at SSRN: http://ssrn.com/abstract=1178762 Sahadevan K. G.2002. Derivatives and Price Risk Management: A Study of Agricultural Commodity Futures in India. Seed money project report. IIM, Lucknow
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Sahoo, P. and Kumar, R. 2oo9. Efficiency and Futures trading – Price Nexus in Indian Commodity futures Markets. Global Business Review 10(2): 187-201 Sreenivasan S. 2008. Futures trading in Agricultural commodities: Is the Government ban on commodities trading logical ?. Research internship Report. Centre for Civil Society.
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KERALA AGRICULTURAL UNIVERSITY COLLEGE OF AGRICULTURE, VELLAYANI Dept. of Agricultural Economics Credit Seminar- AgEcon 591 Name: Sneha Elizabeth Varghese Adm. No. 2010-11-120 ABSTRACT FUTURES TRADING: RELEVANCE IN AGRICULTURAL MARKETING Futures trading is a device for protection against the price fluctuations which normally arise in the course of the marketing of commodities (Acharya and Agarwal, 2004). Generally futures trading can be said as the trading through futures contract. Futures contract is a standardized contract between two parties to exchange a specified asset (commodity) of standardized quality and quantity for a price agreed today with delivery occurring at a specified future date. For any commodity to be traded through futures trading has to satisfy certain conditions like it should be plentiful in supply, it could be stored, it should be homogenous in nature or should be capable of being graded, there should be large no of buyers and suppliers. There is a minimum and maximum amount which could be traded through futures trading. In India, Forward Market Commission is the regulatory body for futures trading in commodities. There 21 Commodity Exchange of which five are national level Multicommodity Exchanges. Wheat, Sugar, Potato, Soy bean, Black gram, Channa, Mustard, Pepper, Cardamom, Rubber, etc. are some of the major agricultural commodities traded through futures exchange. In Kerala, there are two regional exchanges Indian Pepper and
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Date: 22-10-2011 Time: 11-12noon
Spice Trade Association, Kochi for Pepper and The First Commodities Exchange of India Ltd, Kochi for Copra, Coconut/its oil, oilcake. The total turnover of Commodities trading in India in 2010-2011 is Rs 119.5 lakh crore. Of this 11.53 percent is contributed by agricultural commodities. Futures prices evolve from the interaction of bids and offers emanating from all over the country. Participants use fundamental analysis to determine the direction of the market, and technical analysis to time their entry and exit. To determine the futures price, market participants compares the current futures price to the spot price that can be expected to prevail at the maturity of the futures contract. Futures price can be expressed as the sum of spot price and cost of carry minus convenience yield. At maturity, the difference between the two diminishes to zero i.e. spot and futures prices converge. Then the futures market is considered to be efficient in price discovery. Hedging and speculation are the two ways in which the futures trading can be done. Hedging is a trading technique of transferring the price risk. It is the practice of buying or selling futures to offset an equal and opposite position in the cash market and thus avoid the risk of uncertain changes in prices. Hedging by the agricultural producer generally involves selling the commodity at the commodity exchange market because producers want to lock in a price floor (a minimum price they will receive).The fundamental idea under speculation is the purchase or sale of a commodity at the present price with the object of sale or purchase at some future date at a favourable price. The speculator is normally concerned with profit making from price movements. The difference in the prices prevailing at two times constitutes his profit.
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The physical delivery of produce seldom happens here. Only
difference in the prices is paid or taken. Speculators buy at a current price in anticipation of a rise in prices in the future which results in pushing up the current prices. Other speculators, who sell in the present period in the expectation of a fall in the future prices bring about a fall in the current prices. The sum totals of the effects of these speculative activities result in dampening price fluctuations.
The advantages of futures trading are that, it allows anticipatory hedging and it helps to keep a stabilizing influence on spot prices by reducing the short-term fluctuations. The collateral value of inventory is substantially enhanced if it is hedged. An efficient futures market provides reasonably accurate indications of the future spot price and thus helps in production planning. Farmers and growers also benefit through the price signals emitted by the futures markets even though they may not directly participate in the futures market. The futures markets, through advance price discovery lead to a shift in sale-purchase patterns during harvest and lean seasons and thereby facilitate reduction in the amplitude of seasonal price variation and help the farmer realize somewhat better price at the time of harvest. Empowered with the price information the farmer is able to avoid excess sale immediately after the harvest and is also able to bargain for better prices from trade in the market. Apart from the basic functions of price discovery and price risk management, futures contracts have a number of other benefits like providing liquidity, bringing transparency and controlling black marketing. The major disadvantage of futures trading is that unscrupulous speculators, with little interest in the actual supply or, demand for, a particular commodity, to corner the supplies
47
and organize bear raids and bull raids on the market in the hope of making easy money for themselves. Also it is not sure to what extend it is helping the farmers in hedging the price risk. Conclusion Large participation of farmers and local traders is essential to realize the objectives of futures trading. Therefore NGO’s, cooperatives, and famers organization should be
motivated and trained in doing futures trading. Government should setup modern warehouses in the villages which can facilitate the trading. The regulatory and policy measure suitable for futures trading should be taken by the government, thus facilitate a transparent and efficient price discovery. Only this can propel the commodity futures trading and the economic functions of price discovery and avoidance of price risk would be met. References Acharya,S.S. and Agarwal,N.L. 2004. Agricultural Marketing in India (4th Ed.).Oxford and IBH Publishing Co. Pvt. Ltd., New Delhi, 506p. Annual report 2009-2010. Forward Market Commisssion. Ministry of Consumers, Food and Public administration. Government of India Ahuja, N. L. 2005. Commodity Derivatives Market of India: Development, Regulation and Future prospect. Available: http://www.aryanhellas.com/107/na.pdf Atkin, M. 1989.Agricultural Commodity Markets: A Guide to Futures Trading. Routledge, New York. 249p. Baskara M.
48
2007. Commodity futures trading in India: A role of national commodity
exchanges. MBA (agri-business) thesis. University of Agricultural Sciences, Dharwad.154p. Bose, S. 2008. Commodity Futures Market in India: A Study of Trends in the Notional Multi-Commodity Indices. Money & Finance, ICRA Bulletin, 3( 3): 126-158. Cardinal management services (P) LTD. 2008. Enabling farmers to Leverage Commodity Exchanges. Final Report submitted to Multicommodity Exchange of India Ltd.Mumbai. Chakrabarti, R. 2005. Commodity Futures in India. Social Science Research Network.
Available at SSRN: http://ssrn.com/abstract=649856 Easwaran S. R. and Ramasundaram P. 2008. Whether commodity Futures Market in Agriculture is efficient in Price discovery ? – An Econometric Analysis. Agricultural Economics Research Review. 21: 337-344 FMC [Forward Market commission]. http://www.fmc.gov.in [28 Sept 211]. Kumar B., Singh P. and Pandey A.2008. Hedging effectiveness of constant and time varying Hedge Ratio in Indian stock and commodity Futures market. Research Publications. W. P. No. 2008-06-01. IIM, Ahmedabad MCXINDIA [Multicommodity Exchange of India]. 2011. MCXINDIA homepage [online] Available: http://www.mcxindia.com[28 Sept 2011]. Mintert, J., Waller, M. and Borchardt, R. 1998. Introduction to futures market. Western
49
2011.
FMC homepage[online].Available:
Risk
Management
Library
(on
line)
Available
: (18
http://agecon.uwyo.edu/riskmgt/marketrisk/IntroductiontoFuturesMarkets.pdf Sept. 2011)
Mishra, A. K., 2008.Commodity Futures Markets in India: Riding the Growth Phase. Proccedings of an International Conference on Commodity Future: Riding the Growth Phase. Social Science Research Network Available:
http://ssrn.com/abstract=1090843 Nath, G. C. and Lingareddy, T. 2008. Commodity Derivative Market and its Impact on Spot Market. Social Science Research Network. Available: SSRN:
http://ssrn.com/abstract=1087904 NCDEX [National Commodity Derivative Exchange ]. 2011. NCDEX homepage[online] Available: http:/www.ncdex.com [29 Sept 2011] NMCE [National Multicommodity Exchange]. 2011. NMCE homepage[online] Available: http://www.nmce.com[29Sept 2011] NFA [National Futures Association]. 2006. Opportunity and Risk: An Educational guide to Futures Trading and Options on Futures. NFA, Illinois. 96p. Available: http://www.nfa.futures.org/nfa-investor-information/publication-library/opportunityand-risk-entire.pdf Pawan, D. and Nagpal, M. 2010. Is the Pepper Commodity Market Efficient: A
Cointegration Analysis. Summer Internship Project. Centre for public policy. Indian
50
Institute of Management, Bangalore Pradeep Unni (
[email protected]). 2011, Sept 20. Commodity Markets – Future of Futures Market [Personal email, accessed on 20 Sept. 2011] Sahadevan K. G.2002. Derivatives and Price Risk Management: A Study of Agricultural Commodity Futures in India. Seed money project report. IIM, Lucknow Sahoo, P. and Kumar, R. 2oo9. Efficiency and Futures trading – Price Nexus in Indian Commodity futures Markets. Global Business Review 10(2): 187-201 Sreenivasan S. 2008. Futures trading in Agricultural commodities: Is the Government ban on commodities trading logical ?. Research internship Report. Centre for Civil Society.
51
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