The Hindu Business Line : NCDEX to extend delivery period for agri-commodities

Mumbai, Sept. 4 In a move that could align commodity futures to the spot market prices, NCDEX is planning to increase the delivery period to 10-15 days. Now, all the open positions on contract expiry day should end in a delivery.

This decision is likely to narrow down the gap between futures and spot prices during the extended deliverable period as purchases could be made in the spot market and delivered on futures platform if futures prices are high.

It would be a mini spot market during the extended delivery period. “We have received an in-principle approval from FMC for launching staggered delivery in all agri-commodities. To begin with, the coffee contract, to be launched on September 10, will have a delivery period of 10 days,” said Mr Shrikant Subbarayan, chief business officer, NCDEX.

The rate of default on delivery is expected to come down drastically once the plan is implemented. “If a seller finds his goods slightly lower than the contract specification, he will now get time to clean it and deliver again. The cost of this will be lower than the five per cent penalty levied by the exchange on delivery defaults,” said Mr Pratim Kumar Patnaik, Associate VP, Kotak Commodities.

The move could attracts genuine participation in the near month contracts, said Mr Harish Galipalli, head of research, Karvy Commodities. “With staggered delivery in place one can expect better prices realisation. However, it will not have any major impact on price volatility as near month contracts are always less volatile.” .

The delivery process of commodity futures exchanges has attracted criticism over quality assaying. “Nobody can predict the quality of agri-commodities in futures as seeds are not standardised in India. The quality specification and gradation followed are made by the exchanges,” said Mr Subbarayan.

Moreover, testing of agri-commodities are not scientific, but visual, which are subject to dispute. “What may look good to me might not be so to another person,” he said.

Mr Chintan Modi, Vice-President, India Infoline Commodities, felt the staggered delivery initiative would be of little use. “Commodity futures should serve as a heading tool rather than providing deliveries. People would prefer to buy it from spot market, and there are quality issues to be resolved.”