Prices of agricultural commodities have declined by up to 20 per cent in the past week on stern regulatory measures and a revival in monsoon rainfall in major producing regions. However, weather worries and, consequently, a fear of lower output this kharif season, have kept prices up in spot markets.
Jeera for delivery in August on the National Commodity & Derivatives Exchange (NCDEX) led with a decline of 19.1 per cent to trade today at Rs 15,880 a quintal, followed by soybean and castorseed. Both contracts dived 13.5 per cent and 11.5 per cent, to close the day at Rs 3,934 a quintal and Rs 4,196 a quintal, respectively.
This steep decline is a breather for many departments of the Union government, as it would bring down inflation pressure. The commodity derivatives market regulator, the Forward Markets Commission (FMC), is feeling vindicated at the result of the actions it took.
“The decline in agri commodity prices can be attributed to three major factors — the revival in monsoon, government’s threat to suspend contracts that see an abnormal price spurt and frequent regulatory action,” said Atul Shah, chief operating officer of Emkay Commtrade Ltd.
However, as noted, agri commodities were traded with a substantially higher premium in the spot market on continuing monsoon worry and an anticipated fall in production. For example, spot prices of jeera (cumin) at Unjha (Mehsana district in Gujarat, supposedly Asia’s largest market for this) were quoted at Rs 16,157 a quintal today, as compared to Rs 15,880 a quintal for near-month delivery on the NCDEX. Thus, the price differentials offer an opportune time for traders to take arbitrage between spot and future markets.
From 22-24 per cent at the beginning of the monsoon season, the rainfall deficiency has narrowed to 19 per cent, due to its revival in some parts of the country. Although the revival in the northeastern states is unlikely to contribute significantly, with the lack of this region’s presence in major kharif crops, barring paddy, the slight moderation in states such as UP, MP, Gujarat, Rajasthan and Maharashtra are expected to help in better output.
Also, K V Thomas, the Union minister for food and public distribution had warned that commodities showing abnormal price rise would be barred from futures trading. This raised a fear in the market that the government might suspend some more commodities, as urad and tur had been in 2007, without being restored yet. At the time the India Meteorological Department had estimated a deficient rainfall this season to below 90 per cent of the long-term average, prices of agri commodities had started rising, with some hitting a record high.
| CHANGING TUNE (Rs/qtl) (Rs/qtl) | ||||||
| Commodity* | Futures | Spot | ||||
| 6-Aug | 13-Aug | Change (%) | 6-Aug | 13-Aug | Change (%) | |
| Jeera (Aug) | 19,625.00 | 15,880.00 | -19.08 | 16,500.00 | 16,157.70 | -2.07 |
| Soybean # | 4,549.50 | 3,934.00 | -13.53 | 4,520.00 | 4,545.00 | 0.55 |
| Castorseed | 4,740.00 | 4,196.00 | -11.48 | 4,271.20 | 4,051.95 | -5.13 |
| Coriander | 5,300.00 | 4,694.00 | -11.43 | 5,016.65 | 4,781.25 | -4.69 |
| Turmeric | 6,608.00 | 5,870.00 | -11.17 | 5,775.80 | 5,476.20 | -5.19 |
| Potato | 1,320.00 | 1,182.40 | -10.42 | 1,190.25 | 1,169.85 | -1.71 |
| Chilli | 6,324.00 | 5,688.00 | -10.06 | 5,956.80 | 5,778.55 | -2.99 |
| Maize | 1,518.00 |
1,,442.00 | ||||
Meanwhile, FMC took a series of measures, including levy of high margins in some active contracts and temporary suspension of others. The regulator not only discontinued guar and soybean contracts but also disallowed fresh positions in potato (Tarkeshwar) and turmeric contracts. Later, potato contracts were discontinued. Margins were raised in a number of other commodities including sugar, wheat, cotton, cotton seed oilcake and soymeal.
“FMC has kept a close watch on castor seed, sugar, coriander and wheat, and further action can’t be ruled out. All these accumulative actions are helping commodity prices pull down,” said Ajay Kedia, managing director of Kedia Commodity.
But, despite the fall, a majority of these are still trading 40-50 per cent above the normal price level. Hence, there is room for further price decline, he added.
