High prices lead to greater regulation of agri commodity futures

The two back-to-back droughts and a delay in monsoon have led to a rise in agriculture commodity prices. This increase is taking a toll on the health of agriculture futures market. Market regulator SEBI has had the government move in to contain rising commodity prices. The chana futures have gone the same way like urad and tur which were banned in early 2007 and never revived. In 2014, potato futures faced the same fate due to lower crop produce and rise in prices. First margins were increased and then positions on future contracts were disallowed. And the markets had just about recovered from a suspension in castor seed futures this year.

Though prices of pulses have almost doubled since the beginning of this year, they gained 20 percent in the past two months. Chana prices have hit new highs on the back of lower crop and availability. Urad, which is not traded on futures exchanges, also hit new highs at Rs 196 a kg. Commodity prices, however, have seen some decline in the last couple of days.

India depends on imports for its requirements and this year the global markets are also projecting a lower crop, pushing prices higher in those markets, too. Some countries grow pulses only for export purposes and India remains a big market for them. Pulses have seen a double-digit inflation rise every month forcing the government to create buffer stock in pulses and also contract imports. And the government action of buying at a time when there is lower output also added to price rise. The government did crack down on importers and traders of pulses and brought in stock limit. I-T department also raided several commodity brokers and shared info also with SEBI. Consumer affairs ministry had also requested states to exempt pulses from VAT and local levies. But these are all short-term knee-jerk measures and the supply situation has not improved with this. The long-term measures are being discussed but yet to be implemented. 

The reaction from the industry and economists hasn’t been positive on the suspension on commodity futures. An issue of supply and productivity can not be solved by suspending futures trade. This will not curb demand nor lead to long-term issues of lower acreage and yields.

Every time a commodity is axed the volumes on the exchanges go down. Sugar is another commodity that the government has been trying to curb prices of on back of Indian and global deficit. The prices have moved up in Indian markets but the global markets have rallied by 50 percent this year.  It’s a wait and watch on how the prices will react to monsoons which has finally arrived and is expected to beabove normal. So some cheer coming your way.