The commodity market went through a phase of cautious consolidation and vindication in 2009. While the ban on wheat was lifted, sugar contracts were delisted even though the futures contract provided accurate signals of supplies from January onwards.
In fact, sugar prices have increased at a sharper rate after the ban thus vindicating the view that futures trading do not cause an increase in prices. Also the high inflation phase today has been sharper in non-futures traded products which should convince the antagonists that this market segment has not been responsible for inflation.
Agriculture futures trading volumes have shown signs of recovery and with a supportive environment should consolidate further in 2010. I would tend to think that 2010 will be the year of consolidation for agriculture futures assuming that there is no regulatory intervention. We do see a strong reconstruction of the market in farm futures.
The thrust of the exchanges would be on awareness and increasing the perimeter of the market both in terms of participants and products. End users in the commodity value chain have to be brought in greater numbers as we have now only touched the periphery of this class.
Introduction of options
Meanwhile, the awareness at the retail level would also be moving in parallel as this class would have a role to play in the years to come. In terms of products, the approach would be to bring in new products and make the existing illiquid contracts more interesting for the market. A stable regulatory environment will facilitate these efforts.
On the regulatory front we are hopeful that there would be necessary changes in the Forward Contracts Regulation Act to facilitate the introduction of options which will be quite pertinent for farmers, which is a class that has derived only indirect benefits through superior price knowledge so far.
Therefore, we can expect some heightened activity in this market in a supportive regulatory environment in 2010.
(The writer is the Managing Director and CEO of National Commodities and Derivatives Exchange)