SEBI’s ban on chana, mustardseed puts FPOs in a fix

Suresh P Iyengar Mumbai | Updated on October 22, 2021

They used put options, locked in prices under NCDEX’s options trading

SEBI’s ban on chana and mustard futures and options trading on NCDEX has perplexed farmers producer organisations as the move comes six months after it sponsored a farmers’ familiarisation programme on options trading.

In fact, the regulator had parted away few lakhs of the regulatory fees to be paid by NCDEX, in a bid to encourage farmers to use options trading in these commodities.

NCDEX options programme

NCDEX’s familiarisation programme for FPOs was conducted between last November and this February. Farmers from Rajasthan and Madhya Pradesh through FPOs were able to buy ‘Put’ options and lock in a minimum selling price in chana and mustard seed even before sowing the first seed on the ground. The premium cost to buy the put option was subsidised up to ₹300 per quintal under the programme.

About 41 FPOs participated in the programme and locked-in price of 1,030 tonnes of chana and 1,980 tonnes of mustard seed. The premium cost of about ₹83 lakh for buying the put options was subsidised under this programme to protect products worth around ₹15 crore.

Usually, farmers decide to grow a particular crop after seeing the then price. However, at the time of harvest, prices crash due to a sudden surge in output and leave farmers in the lurch.

In contrast, the put option contract helps farmers to lock in the price by paying a small premium at the time of sowing. If the prices fall below the locked-in price farmers can deliver the commodity on the exchange platform and realise their money. If the spot prices are higher than the locked-in prices, farmers can forego the premium paid and sell their produce it in the spot market.

Yogesh Dwivedi, CEO, Madhyabharat FPOs Federation, said it had managed to fix the price of 80 tonnes of chana with a premium of ₹1.60 lakh which was subsidised by SEBI.

Last year, farmers sold chana in the spot market as prices were higher there than the locked-in option price, but this year there is a lot of uncertainty as sowing is delayed and would start only after Diwali, he said.

The options contract would have worked wonders for farmers this time, but the exchange told the product was banned by SEBI, he added.

Ravinder Gaur, Director, Shubhlaxmi FPO, Nagaur, Rajasthan, said it had locked in 100 tonnes of mustard seed by paying a premium of ₹2.70 lakh last year and expects prices to fall in the coming season after making new high last year.

Ajay Kumar, Director, Kedia Commodities, said once a commodity is banned from trading it is very difficult to get the hedgers back and regain their confidence. The recent ban in two commodities has set the clock back and some of the corporates are now hesitant to take a fresh position in agriculture commodities, he added.

Published on October 21, 2021

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