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The Forward Markets Commission (FMC) has done away with several agri-commodities contracts for 2013, extending the list of contracts already banned.
This is in keeping with its decision that contracts will not be allowed during the lean season when there are insufficient supplies to make for any meaningful price discovery.
“This year we did away with the September soyabean contract,” said Ramesh Abhishek, Chairman of FMC – the commodities market regulator.
“Next year we are likely to do away with the August expiry contracts in soyabean and soyameal. We will not have any contracts from November to February for potato. We will add October too for potato,” (see box) he said.
Markets under Pressure
The Commission had asked MCX not to launch their November potato contract this year for the first time.
The list needs to be further refined, said Abhishek.
“In the first round, we allowed the August contract for soyabean but now we have taken the view that even August is not a good idea. So we will continue this exercise to strengthen our measures to curb speculation and volatility. The market is always under pressure during the lean months because there is no threat of delivery. I think the market will be much better off with these bans.”
‘logical move’
This is a logical move on the part of the exchange, said Aurobinda Prasad, Head of Research, Commodities Trading, at Karvy Comtrade. “Speculation would come down a little although traded volumes too could see a drop; this ban is not going to hurt the farmer, investor or hedger,” he said.
Commodity prices usually turn volatile during the lean season which is the period furthest from the harvest, said another commodity analyst.
“External factors such as variations in the monsoon and government policy also impact prices. All this distorts price discovery. This is also the period when speculators get active in the market. Overall the ban is a welcome step to curb price volatility,” he added.
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