100 per cent margin in commodity futures: sharp decline in volume

- Commodity Current-Jayavadan Gandhi

With the onset of monsoon across the state last week, the farming community is overjoyed that kharif farming has been given a lifeline. Farmer incomes are negligible in the agricultural markets but the market is sluggish despite the general trades of stockists and vendors. Due to the lack of rains, many commodities in agricultural futures were bullish but the bullishness due to rains is a mixed recession. However, the possibility of the Commodity Futures Market's survival being jeopardized by the impact of the 100 per cent margin on agricultural futures being implemented from this month onwards has been debated in business circles. With 100 per cent margin, small capital investors are likely to exit the futures trade directly. Currently, the size of the volume lot in agri futures is not the job of small investors.

For instance, a minimum of three tonnes of cumin futures requires an investment of Rs 4.5 lakh to Rs 5 lakh. Similarly, a minimum volume of five tonnes in guar seed, guar gum, castor, soybean, soybean oil, coriander turmeric and ten tonnes in chickpeas has made it difficult for small investors to trade in futures. So the 100 per cent increase in margins has seen a sharp decline in agri commodity futures trading over the last decade. In order to increase business in futures trading, the exchange authorities need to change the size of the lot or reduce the margin. For example, if the volume size of a mug is kept at just one ton, small investors may be able to participate, which could also boost futures market turnover.

However, the agri-futures market has recently started trading in soybeans and guar. Index-based trading is more likely to grow in the near future. As there is no delivery base in the index trading, the interest of traders is likely to increase as there is an opportunity to trade like the stock market. A trader who only wants to slow down is more likely to make a profit than a loss if he moves from a small size to an index business. The index is becoming more interesting for small investors as it offers the option of working with smaller contracts. Currently, the 100 per cent margin has significantly reduced the volume in the agricultural futures market, affecting business as well as the agricultural futures market.

The government has exercised to control the rise in food prices as well as the rise in trade in agricultural futures but due to some factors it has not been successful. Currently, the government is trying to reduce the import duty again to curb the rise in edible oils.

Edible oil prices have risen by 50 to 60 per cent in the last one year. The import duty on crude palm oil, the most widely consumed edible oil, has been reduced from 30 per cent to 35.75 per cent. Import duty on refined soybean oil and sunflower oil has also been reduced from 45 per cent to 37.5 per cent by the end of September. The import duty was also reduced last month. It remains to be seen how much the reduction in import duty will reduce inflation during the festive season till next Diwali.

In addition, spices like coriander, turmeric, ajmo can go ahead. Prices have risen above Rs 8,300 per quintal in the last few months due to reports of declining coriander cultivation in the manufacturing sector this year as well as strong demand for coriander in Europe. Many true stockists and traders are missing out on buying coriander. Even if the coriander market crosses 8500, it is not surprising. Turmeric also has a coriander-like condition. Demand for turmeric ayurvedic medicines from home and abroad is increasing significantly.

During the first five months of 2021, turmeric exports have crossed 64,000 tonnes with an increase of 10 per cent. Fear of damage to turmeric crop due to heavy rains in some states is supporting the boom in turmeric market. Turmeric futures crossed the 7900 level per quintal last week. Prices are also likely to cross Rs 8,100 if stockists buy turmeric.