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 & Derivatives Exchange (NCDEX) rose 25% in April-June from the previous quarter, compared with a 37% fall in previous year.NCDEX accounts for 88% of the agri-commodity derivative trade.
National Multi-Commodity Exchange, the other major agri-futures exchange saw trade turnover rising by over a fifth.
“There has 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,” Sabnavis, who expects the increased volumes to continue in the near-term, said.
Lack of widespread irrigation facilities in India’s farms has resulted in larger dependance on monsoon. Just 42.4% of sown agricultural land is irrigated, according to Morgan Stanley.
India’s monsoon delivered above-average rains last week but the worst dry patch in more than 80 years has already impacted majority of the crops.
Government agencies are also regularly conducting raids across India 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. Guar seed is one of the most-traded agricultural commodity followed by oilseeds and chana. 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, about 45 days after sowing began, the area under oilseeds, pulses and grains were lower than last year.
Trade volumes are up “especially oilseeds and pulses. Soyabean, soya oil, channa, gaur seeds, we have seen huge volumes in these,” said Veeresh Hiremath, a senior analyst with Karvy Comtrade Ltd. “Business of commodity derivatives is going to grow because of the way monsoon has acted,” said Kunal Shah, assistant vice-president at Nirmal Bang Commodities.
“Traders are going long on all commodities. You will see some gradual correction taking place but overall bias is definitely on upside.”