Agri fin-tech firm Origo Commodities said its forward contracts for various agro commodities have been receiving good response from stakeholders such as processors, traders, corporates and investors among others.

The company expects forward contracts to touch ₹1,500 crore per year, within the three years, said Sunoor Kaul, co-founder and director, Origo Commodities. Over past four years, Origo Commodities has issued forward contracts to the tune of ₹500 crore, he said.

Three-way benefit

Forward contract is a contract between two parties for the delivery of a specific quantity, at a specific price with a specified quality at a specified time in the future. Such contracts offer a three-way benefit to commodity stakeholders – to trade, hedge and finance, Kaul said. Also, given that the forward contracts are designed for deliveries, this is an option for processors to ensure stable supply and hedge their cost of procurement, he said.

“Hedging through forward contracts allows buyers to fix their commodity cost at the time of entering into forward contract and settlement for the contract can be as long as one year,” Kaul said. Through Origo’s forward contract, buyers can also trade on commodities by purchasing the contract today and sell the contract through Origo to other buyers when the price of the commodity is higher, he said.

Forward contracts also allow for off-balance sheet financing and buyers in addition to upfront margin only need to pay the carrying cost for the commodities. Origo also provides confirmation of the commodity purchase along with location of warehouse and quality and price of commodities, he added. The forward contracts commodities done by Origo includes paddy, wheat, soyabean, mustard, cotton, maize and pulses.

Kaul said several banks have partnered with the company providing structural debt financing options, paving the way for commodity purchases, investments in tech-backed warehouse management systems, and trade finance.