Despite the robust relaunch of sugar futures, cooperative sugar societies — they hold around 60 per cent of the country's supplies of the commodity — are shying away owing to high risk, volatility and uncertainty.
Given the higher sugar output estimates, the Centre recently lifted a 19-month suspension of forward trading in sugar. The restart of sugar futures saw Rs 83 crore in volumes on the first day yesterday at National Commodities & Derivatives Exchange (NCDEX).
Cooperative sugar societies have so far been reluctant to participate in futures trading, though there are no restrictions on them under the Cooperative Societies Act. “Cooperative societies are meant for the welfare of farmers and to provide a fair price for their crop. Although, there is no restriction on them to participate in forwards trading, they do participate in any speculative activity like forward trading,” said Ghanshyambhai Amin, vice-chairman, National Cooperative Union of India, the apex body for cooperative societies.
Added Mansinh Patel, chairman, Gujarat State Federation of Cooperative Sugar Factories: “No cooperative society participates in futures trading due to its speculative nature.”
Cooperative sugar factories in Maharashtra are also reluctant to participate in futures trading. They prefer the traditional route of selling sugar through brokers and traders, as they feel it is efficient and cost effective. Cooperatives are not keen to enter into futures trading in big way due to the lack of infrastructure and deployment of manpower.
A source at the Federation of Cooperative Sugar factories in Maharashtra, who did not wish to be named, told Business Standard: “The federation may convene a meeting with cooperative mills to discuss pros and cons of futures trading.”
He also said seven cooperative mills are geared to trade in futures. They have the backing of the management and have already set up a separate cell for the purpose. But others are staying away.
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However, some cooperative sugar societies from Punjab are taking a cue for prices from market participants. “We take the price cue from traders and other market participants. But we do not follow exchange prices. However, we are not aware if traders follow the prices quoted on exchanges,” said a top official from the Punjab State Federation of Cooperative Sugar Mills, a central body of 15 cooperative sugar mills in Punjab.
The resumption of sugar futures is yet to see full-fledged participation from all types of participants. “We have seen inquiries from several cooperative sugar societies about participation in sugar futures. But they are waiting for policies to be streamlined with some level of sustenance,” said a commodity expert.
Jayant Manglik, president, Religare Commodities, said, “It is premature to measure the participation in sugar futures, but the opening has been robust. However, the corporate sector has remained silent this time due to inconsistency in government policy.”
Vijay Kumar, chief business officer at NCDEX, said: “It will take a while before volumes build up. We are sure that even corporate and other players, who were hedging in sugar futures, will come back again.” He said when options are introduced, participation will increase further. Options are a cheaper instrument for hedging.
Yogesh Pande, president of the Maharashtra Sugar Brokers’ Association, said: “Due to high global sugar prices, prices in India will remain firm. The last closed rate on the London exchange was $820 per ton, which is expected to increase to $1,000 due to a severe global sugar shortage. No one is confident of future sugar production in coming months.”
Further, Pande said because of heavy and delayed rainfall in southern India and Maharashtra, sugar recovery has been adversely impacted. Against the national average of 10.9 per cent, recovery in Maharashtra is in the range of 9-10 per cent. Overall, there is a shortfall of 1 per cent, which will affect the government’s sugar production estimate of 25 million tonnes.
Mumbai-based traders said although India will produce excess sugar compared with its consumption of 22 million tonnes, the government would have to create a buffer stock to protect against an ensuing price rise.