The Hindu Business Line : `Coconut oil futures unable to serve their purpose'

According to market observers, in the absence of transparency in trading and pricing in the spot market, the futures market has been unable to perform its function.

"Unfortunately, the prevailing spot market in coconut oil failed to satisfy the required conditions in the absence of proper dissemination of information and fragmentation of markets in different regions," they alleged.

The proximity and inter-dependence of spot and futures markets were important to make risk management more efficient and accessible to various participants, they pointed out.

What was happening at present in the coconut oil market was that the spot markets were primarily influenced by the supply and demand factors in particular regions and futures prices were driven by a very small section of operators in the futures exchange which was not a healthy trend, they said.

This kind of artificial fluctuation, market sources claimed, was detrimental to the coconut farmers and consumers.

According to them, the speculators are responsible for the wild fluctuations. Some were manipulating the prices by taking comfortable short positions in the futures market, they alleged. As a result, default in payment amounting to around Rs 20 lakh had forced the market to suspend trading for a few days this year, they said.

The evaluation of the above prices reveals that "there is not much difference in prices of 2003 and 2004 but the prices in 2005 show a wide difference than the previous two years." It is important to evaluate whether the sharp increase in prices during 2003 and 2004, especially when prices of other edible oils in the country had been fluctuating moderately on both ways, had been driven by up-country demand or domestic demand.

The sudden decline in prices in later months of 2005 that being Rs 7,400 in February and Rs 5,400 in April, proved that the increase had not been triggered by rise in demand but prompted by supply disruption.

The authorities, they said, had contended with the ground realities such as the market discovering the prices and dictating that to the players rather than players inventing the prices and imposing it on the market.

According to them, if the prices are an indication of future price trend, then it could be predicted that during the next season from March to May, the prices may come down to the level of 2001 and even below.

Reports of good crop in the coconut producing States due to favourable weather conditions might cause copra prices to drop next season.

Already the copra price in the market is down at Rs 3,200 a quintal despite the announcement by the Kerafed in early September 2005 that it would procure copra at Rs 3,570 a quintal.

Trading sources attributed the increase in coconut oil prices last year to the sharp fall in coconut production, resulting in shrinkage in commercial availability of copra and consequent rise in copra prices.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page