Centre sets up panel to consider wheat hedging

Centre sets up panel to consider wheat hedging
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First Published: Thu, Mar 15 2007. 08 53 AM IST
Updated: Thu, Mar 15 2007. 08 53 AM IST
The Centre, which recently banned futures trading in wheat in the domestic market, has set up a committee to consider trading in wheat futures in the global market, in case India needs to import the grain. A Union government official said: “Last year, a committee had been set up under cabinet secretary B.K. Chaturvedi to look into futures in wheat. We entered into a futures contract but chose not to take delivery.”
“Last year, we did it on a trial basis,” said the official. “This year, we have set up a committee to ensure that should the need arise, we can import wheat at a reasonable price,” he said, adding that the need for having a futures contract was felt since the international wheat prices are expected to rise further this year.
“The idea behind futures is that if the price of wheat is at, say, Rs10 per kg, and is expected to increase to Rs15 per kg in the future, then one can enter into a two-month futures contract to take delivery of a certain amount at a price lower than Rs15. If the price of wheat at the time of taking delivery is higher than the futures price, the difference is what you have earned as a profit,” the official said.
The Centre recently banned futures trading in wheat in the domestic market, in an attempt to try and put a lid on price hikes.
The new committee is likely to take hedging exposure in options or futures at the Chicago Board of Trade (CBoT), the leading global commodity futures exchange. CBoT is also the largest international exchange for wheat.
Successful hedging at CBoT will help the government import wheat at cheaper rates, insulate the economy from the volatility of wheat prices in the global market and maintain parity between domestic and international prices.
“The government is expected to take futures for around two million tonnes, but may revise it (the quantities) subsequently,” the official told Mint.
“Since the government plans to import huge amounts of wheat, it will be able to control the price volatility in the market,” said an official at a leading commodities exchange, who did not wish to be identified. He confirmed the government did a trial run last year by hedging smaller quantities of wheat at CBoT.
sangeeta.s@livemint.com
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First Published: Thu, Mar 15 2007. 08 53 AM IST
More Topics: Budget 2007 | Budget and Policy |