The interest of mills and traders in sugar hedging at commodity exchanges has revived along with the rising prices. Trading volumes in sugar futures at the National Commodity and Derivatives Exchange (NCDEX) have more than doubled between October 2008 and March 2009 and the April volumes are even higher.
The average daily open interest (which indicates the volume of trade carried forward) has gone up from 12,181 tonnes in October last year to 30,318 tonnes in April. The daily value of trade in sugar futures too has seen a sharp jump from Rs 5.36 crore to Rs 43.24 crore. These data are much lower compared to the size of the sugar industry, but do reflect a trend that futures are becoming useful tool.
According to sources, cooperative sugar mills in Maharashtra and traders across the country are active on the exchange and have been increasing volumes to hedge against the fluctuation in prices. Some Uttar Pradesh mills such as Oudh Sugars and Upper Ganges Sugars are also participating in hedging at the exchange.
However, the volume of big sugar mills is small since they do not find much depth. Apart from these, speculators also participate in futures trading.
“The increase in volume can also be attributed to the spurt in sugar prices. Volatile prices have also lead some mills to hedge their positions though lower client-wise limit restricts their hedging on futures,” said an industry expert. Ex-factory sugar price in UP has jumped by about 35 per cent to around Rs 2,300 a quintal since October on projections of a sharp dip in output.
Data on price movement in spot and futures markets show futures prices were ruling lower than spot prices the past month, indicating that the rising prices of the commodity are not a result of futures trade. Rather they show that prices in future are likely to come down. This is significant in the light of a demand for ban on sugar futures currently gaining ground.
According to the latest estimates by the Indian Sugar Mills Association (ISMA), the sugar output in the season ending September 30 is likely to touch a four-year low of 14.5 million tonnes.