The Forward Markets Commission (FMC), the commodity derivatives market regulator, has levied a 20 per cent special margin on the buy side on all potato contracts, effective tomorrow, to control a sudden price spurt in the vegetable.
With this levy, the overall margin on the long side goes up to 30 per cent from the existing normal margin of 10 per cent, while the short side margin remains unchanged at 10 per cent.
“The primary intent of the regulator is to reduce volatility. Potato prices remain highly volatile, primarily with an upward bias due to the cold wave-feared crop damage,” said an analyst.
The margin is a component a trader needs to keep deposited with the exchange on which he does not get any exposure. This means the money is blocked with the exchange. Margins have proved a major weapon for the regulator to keep volatility under check in several agri commodities. Soybean, mentha oil and other commodities have seen a similar increase being imposed.
Potato contracts for near month delivery on the Multi Commodity Exchange rose 11.4 per cent in the past 10 days due to extreme change in the weather and the resulting fear of crop loss this year. Supply to mandis was also hit by a shortage of transport and labourers in farms and the markets. In the spot market, too, prices rose 15 per cent in the past two weeks.
“The output estimates are favourable this season on a rise in acreage. The price rise, therefore, is a temporary phenomenon, which would be overcome soon,” said Vedika Narvekar, an analyst with Angel Broking.
The National Council of Applied Economic Research says output will rise this year on a favourable monsoon. “Taking into view factors like the negative impact of below-normal rain in some major growing parts, which could be negated by high prices during planting, potato output growth in 2012-13 is expected to be five-seven per cent over the previous year at 44.6-45.6 million tonnes,” it said.
