Mumbai: A delayed and deviant monsoon has led to higher trade volumes in Indian agri-commodities futures as dealers try and hedge their positions to ride out uncertainties on output and prices.
Trade turnover on the National Commodity and Derivatives Exchange (NCDEX) rose 25% in April-June from the previous quarter, compared with a 37% fall in the previous year. NCDEX accounts for 88% of the agri-commodity derivative trade.
The National Multi-commodity Exchange, the other major agri-futures exchange, saw trade turnover rising by at least one-fifth.
Erratic rains: A paddy field in Murshidabad district of West Bengal. Trade turnover on the National Commodity and Derivatives Exchange rose 25% in April-June from the previous quarter. Indranil Bhoumik / Mint
“There has been been lot of volatility in prices among commodities and that has contributed to our own business volumes. We have seen a big jump in (volumes) the last couple of weeks,” said Madan Sabnavis, NCDEX’s chief economist.
“The monsoon news has been partly responsible for the volatility... There has been no unidirectional movement in prices. They have been going up, they have been going down,” said Sabnavis, who expects the increased volumes to continue in the near term.
Lack of widespread irrigation facilities in India has resulted in larger dependence on the monsoon. Just 42.4% of the sown agricultural land is irrigated, according to Morgan Stanley.
The monsoon delivered above-average rains last week but the worst dry patch in at least 80 years has already hurt the majority of the crops. Government agencies are also regularly conducting raids across the country to stop hoarding and rein in prices.
Analysts and traders said such decisions coupled with rain deficiency is creating panic, encouraging traders to use exchange platforms.
“We have been cautiously watching the monsoon before taking positions... Lower acreage indicates poor supply and a rise in prices... We have now increased participation in futures market for guar and oilseeds to offset any losses or to even to make profit,” said Abhishek Gupta, a trader in Jaipur.
Analysts said this trend is likely to continue as sowing continues to lag the previous year’s progress, thanks to unpredictable rains.
As on 17 July, around 45 days after sowing began, the area under oilseeds, pulses and grains was lower than last year.
“Traders are going long on all commodities. You will see some gradual correction taking place but the overall bias is definitely on the upside,” said Kunal Shah, assistant vice-president at Nirmal Bang Commodities.