Mumbai: The National Commodity and Derivatives Exchange (NCDEX) will not go ahead with onion futures trading, while it is set to launch spot trading in coffee and maize, a top exchange official said.
“We have received approval from the Forward Market Commission (FMC) for futures trading in onion, but have decided to stay away,” NCDEX’s managing director P.H. Ravikumar said.
Onion is highly politicized, besides, it “is also difficult to store as the commodity is mainly dry outside,” he said. Prices had shot up sharply a few months ago, but have now tumbled on mounting arrivals and subdued export demand, and are expected to remain weak for the next few months, traders said.
The wholesale price in the country’s largest onion trading hub, Lasalgaon in Maharashtra, fell to its lowest level at Rs365 per 100kg, from a peak of Rs1,951 on 1 October. Prices slipped following the government’s announcement of an action plan to check rising prices and increase onion supply, commission agents said.
Onion prices are likely to drop further as output is projected to go up by 14% in 2007-08, with the area under onion crop likely to increase in the ongoing kharif, or summer crop season.
The onion season starts with the onset of monsoon and runs along with it until October.
Production in the current kharif season is likely to be at 1.5 million tonnes, with as much as 20% of the total output being produced in the kharif season.
Onion is produced in three seasons—kharif, late kharif, and rabi (winter crop season)—and harvested during July-October, January-March and April-June, respectively, onion trader Anant Bhave said.
The kharif season onion harvest contains high moisture and reduces its shelf life, forcing farmers to bring their produce to market as early as possible, Bhave added.
“After the soft launch of spot trading in sugar, we are now launching full-fledged spot trading in coffee in six weeks’ period followed by spot trading in maize,” Ravikumar said.
Coffee spot trading will be launched in the southern states of Karnataka and Kerala, while that in maize will start in Bihar, the exchange managing director said.
“We plan to add more agricultural commodities in the next few months,” he said, adding the process of identifying them was on.
“We would like to grow spot trading, but we do not want to take a large number of commodities,” he said.
In spot trading, every deal has to be delivered and physical handling is very heavy, he added.
Meanwhile, the exchange is concentrating on increasing liquidity of its illiquid commodities. “We have 52 commodities and 40 of these are active. We are now concentrating on increasing liquidity of illiquid commodities and increase client participation,” Ravikumar said.
The exchange is also broadening hedgers’ participation, the managing director of the exchange added.