Post-ban uncertainty to play spoilsport in agri market

MARKET OUTLOOK

Uncertainty over futures trading in agri commodities is expected to continue till firm assurances come from the market controlling machinery, including the Centre and the Forward Markets Commission.

Market watchers believe the government has failed to implement a free-and-fair price discovery mechanism to keep a tab on the overheating agri commodity trade.

On the contrary, its sudden move to ban futures trading of tur and urad, along with a few more farcical measures including limit on open position in several commodities and account auditing of members, has negated enthusiasm of overseas commodity brokers to consider investing in the country's commodity exchanges.

Consequently, comexes concentrating on agri commodities would lose substantial business either to spot markets or non-agri commodities.

"We had demanded ban on tur and urad futures, but not in the way the government did," said a Mumbai-based trader. An immediate ban is not the solution to price manipulation. The stern action gave the entire futures trade jitters, and traders are hesitant of putting money in commodity futures, he added.

"Commodity prices depend on physical demand and supply situation and not on futures. Yes, stockists were discovering prices and trading thereafter, which would be checked by the ban. But, trading would remain unabated in the spot market, where the government has no control at all," the trader said.

Meanwhile, prices remained steady in the Mumbai spot market after recovering the early losses of 4-8 per cent. Tur of local variety was quoted at Rs 2,000 a quintal against Rs 3,200 a quintal for Burmese variety. Urad surged to Rs 3,200-3,250 a quintal in Mumbai towards the end of the week.

The prices of edible oils are also expected to remain more or less immune to the import duty cut of 12.5 per cent.

B V Mehta, executive director of the Solvent Extractors' Association, believes the reduction in customs duty will reduce the landed cost of the oils by $50, the impact of which would percolate to retail customers with price coming down by Rs 2 a kg.

An analyst said that instead of the duty cut, the government should focus on increasing the yield by introducing genetically modified (GM) seeds and providing better irrigation system and nutritious fertilisers.

The vision of the government should be for a long-term solution, he added. The country imports around 42 per cent of its annual edible oils demand, which is currently pegged at 12 million tonne. The demand is expected to shoot up to 15.6 million tonne by 2010.

Although the country has an acreage of 26 million hectare under oilseed cultivation, the yield is a paltry 0.97 tonne a hectare. And as long as the yield remains low, the country will continue to be dependent on imports to the extent of 40 per cent, analysts said.