Coffee futures contracts trading on the Indian commodity exchanges need to induct available varieties in the market with reduction of lot size to make it more liquid in exchanges in the near future.
Spreading more awareness among planters and traders regarding coffee futures market for an appropriate price discovery is also needed.
“There should be more coffee varieties being traded in the exchanges to make future contracts liquid with sound growth in volume,” Babu Reddy, agricultural economist of Coffee Board of India said.
He also said that awareness should be created among traders and planters to make coffee as an active contract.
Presently, coffee futures are being traded on the National Commodity and Derivative Exchange (NCDEX) and National Multi-Commodity Exchange (NMCE).
While robusta cherry AB variety is being traded in the NCDEX, varieties traded in NMCE are robusta REP bulk coffee with various specifications. In the trading front, NCDEX coffee futures are illiquid and NMCE futures have witnessed less than expected volume in recent time.
“The lot size of 2 tonnes at NCDEX or 1.5 tonne at NMCE is higher for any small planter to enter into futures contract. This lot size should be reduced for higher participation from small and medium planters,” Chowda Reddy, an analyst with JRG Wealth management said.
Coffee is an actively traded commodity in international commodity bourses like Liffe and ICE futures.
As coffee prices are extremely volatile depending on factors such as the size of stocks globally, weather forecast and speculations by fund houses, it has been introduced by Indian exchanges for hedging price risk.
However, lack of introduction of available variety acts as a major dampener to active trading.
“Varieties like robusta cherry AB with a lot size of 2 tonnes can only be provided by curers and not by planters. So, Indian varieties like robusta parchment, arabica parchment and cherry should be introduced in the exchanges, which have more availability in Indian market,” Reddy said.
However, officials from commodity exchanges have a different view about this matter.
“As big Indian exporters normally enter into contract in international commodity exchanges, volume in Indian exchanges are low,” Anil Mishra, chief executive officer of National Multi Commodity Exchange said.
He also said that hedging position in international market helped exporters in giving physical delivery.
Commodity exchanges are also expecting a turn around in volume growth with amendment in Forward Contracts (Regulation) Act (FCRA).
“With amendment of FCRA, financial institutions will be allowed to participate and we expect sound volume growth in coffee contract with entry of counter parties into the trade,” Mishra said.
About participation of small planters, he said that the lot size could be reduced in future for facilitating more of small planters’ participation.
