Urad futures witness volatility

Traders fear price manipulation in futures segment of urad as the commodity has witnessed huge volatility in the second half of the current calendar year on both Multi Commodity Exchange (MCX) and National Commodity and Derivatives Exchange (Ncdex).

Prices are moving hand in hand in both the exchanges but volume and open interest on MCX is higher than that in Ncdex.

Urad futures on MCX for recent months were quoted at Rs 1,816 per quintal on July 1 which moved down to Rs 1,707 per quintal on September 20 and further shot up to Rs 2,987 per quintal on November 5. Prices are sliding since then and it is currently at Rs 2,555 per quintal.

On Ncdex, futures remained at Rs 1,821 per quintal on July 1 and came down to Rs 1,764 on September 26. They again shot up to Rs 3,000 per quintal on November 18.

Currently, urad is quoted at Rs 2,534 per quintal. Urad futures on exchanges are mainly meant for fair average quality of Myanmar origin. For Mumbai, FMC has only permitted Mumbai-urad that is locally produced urad (desi urad).

Also, traders think that Myanmar urad contracts do not fall in the category of FMC specifications.

According to the specifications, all the commodities are not suitable for futures trading. For being suitable for futures trading the market for commodity should be competitive.

This means that there should be enough demand and supply for the commodity. No individual or group should be able to influence the demand or supply, and also the price. There should be fluctuations in price.The market for the commodity should be free from government control.

Even if Myanmar (Burmese) urad is traded on exchanges, futures are not transparent as Myanmar is under the control of a military government and does not specify the total production and availability of urad to Indian traders.

Myanmar urad contracts solely depend on supply from Myanmar which can be tightened or loosened any time by a handful of traders. Still, traders believe that hardly 25,000 to 30,000 tonne of Myanmar urad is available for trade which can be manipulated by anyone.

Myanmar is also facing US sanctions and therefore futures can not be permitted on the supply basis.

According to FMC guidelines, speculation is good for the market as it leads to distortion of price signals. However, over speculation needs to be curbed. This is clearly violated in the case of urad which forms about 0.1 per cent of total agricultural produce of the country.

The price discovery and price risk management is not fulfiled in the case of urad and the risk is maximised due to high volatility.

"The total market size of Myanmar urad is about Rs 1,000 crore which can be manipulated by a handful of traders anytime and a commodity with such a small market is not traded anywhere in the world", a Mumbai-based trader said.

"Delivery for Myanmar urad is not possible in 10-15 days even though the futures are meant for delivery as imports take at least one month.Therefore, the delivery centre should be either Myanmar or the futures for desi urad should be permitted in place of Myanmar urad," said a trader.

Traders believe that if FMC does not deal strictly with those who are manipulating the market then urad futures can touch Rs 5,000 per quintal in future.