Future trading ban may reduce wheat prices in India

The ban on new future trading contracts for wheat and rice announced by the finance minister has already resulted in wheat prices falling. Wheat dara (for mills) remained in negative zone and prices declined to Rs 1,000-1,005 per quintal from Rs 1,020-1,035 per quintal while wheat mp (deshi) drifted to Rs 1,200-1,550 per quintal from Rs 1,390-1,590 a quintal Analysts say that as 'badla' operators, who used to provide finance against grain stocks, withdraw from the futures market, hoarding will fall. Further with the ban, arbitrage between spot and future trading will stop taking away a lot of the demand. However, the ban would not make any impact on rice prices as there is hardly any trading in rice contracts on the commodity bourses. Large players with deep pockets used to benefit by exploiting arbitrage opportunities between different market segments. These traders buy from spot markets and hoard them while simultaneously hedging the price-risk by selling futures contracts. This practice is popularly known as 'badla' financing. The stocks held under 'badla' are immune to price volatility. Many times demand from such financiers becomes a significant portion of overall demand and skews demand-supply scenarios. The wheat price in March contracts on NCDEX on Thursday fell from Rs 975 to Rs 972 per quintal. However, the volumes of wheat contracts plunged drastically as a result of unwinding position on wheat counter. Navin Mathur, commodity head, Angel Broking said that arrival of new wheat supply in coming months will also ease out pricing pressure on wheat. As a result of the ban on futures trading in wheat, large corporates and hedgers will not come to commodity markets to hedge their position and this will affect the volumes of commodity markets.

Courtesy:EconomicTimes
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