Introduction

National Commission on Agriculture (1976) defines Agricultural Marketing as a

process which starts with a decision to produce a saleable farm commodity and it

involves all the aspects of market structure or system, both functional and institutional,

based on technical and economic considerations and includes pre and post harvest

operations, assembling, grading, storage, transportation and distribution. The marketing

of farm product is a complex process. Why is marketing being complex so important?

Marketing is an incentive for further production. As only through efficient marketing,

producer gets good price for their commodities. Thus efficient marketing will lead to

increase in production and thus result in the economic development of the country. Hence

development of suitable marketing strategy is very essential. This can be done only if we

develop each and every marketing function.( Marketing function is defined as any single

activity performed in carrying a product from point of its production to the ultimate

consumer may be termed as marketing function. )Thomson classified marketing function

into i) Primary functions which are assembling/ procurement, processing, dispersion or

distribution; ii) Secondary functions which are packing or packaging, transportation,

grading, standardization and quality control, storage and warehousing,

determination/discovery of prices, risk taking, financing, buying and selling, demand

creation, dissemination of market information; iii) Tertiary functions which are banking,

insurance, communications and supply of energy. Among these functions the secondary

functions of price discovery and risk taking is where futures trading become relevant.

Under the marketing system, there is the responsibility of realizing the value of

the goods delivered to the final consumers and distributing it to the various marketing

agencies and farmers. The prices of agricultural products fluctuate not only from year to

year, but during the year from month to month, day to day and even on the same day. The

changes in prices may be upward or downward. Price variation cannot be ruled out, for

the factors affecting the demand for, and the supply of, agricultural products are

continually changing. Price volatility is perhaps the most pressing issue facing producers

of primary commodities. The low prices for basic commodities limit the income farmers

(/small producers) can receive for their products and the high volatility of these prices

makes it very difficult for them to optimize the use of their income (Morgan, 2000 cited

by Bose 2008). Futures trading can be a major tool in mitigating this risk and also can

help in efficient price discovery.

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What is futures trading?

Acharya and Agarwal (2004) define futures trading as a device for protection

against the price fluctuations which normally arise in the course of the marketing of

commodities. More specifically futures trading can be said as the trading through futures

contract. Futures contract is a standardized contract between two parties to exchange a

specified asset (commodity) of standardized quality and quantity for a price agreed today

with delivery occurring at a specified future date.

In other words a future contract is a legally binding agreement to buy/ sell a

commodity /financial instrument sometime in the future at a price agreed upon at the time

of trade. While actual physical delivery of the underlying commodity seldom take place,

futures contract are standardized according to delivery specifications including the

quality, quantity and time and location. The only variable is price which is decided

through trading process.The trading of futures contract takes place in a futures exchange

or futures market or commodity market.

Trading of any commodities can be through two ways either spot trading or

forward trading. Futures trading are a type of forward trading.

Spot trading is any transaction where delivery either takes place immediately, or

with a minimum lag between the trade and delivery due to technical constraints. Spot

trading normally involves visual inspection of the commodity or a sample of the

commodity, and is carried out in markets such as wholesale markets. Commodity

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markets, on the other hand, require the existence of agreed standards so that trades can be

made without visual inspection. Spot price is the price that is quoted for immediate

settlement. Spot Market is a public market in which commodities are traded for

immediate delivery. A spot market can be an organized market or an exchange.

Forward trading is the trading through forward contracts and forward contract is a

non standardized agreement or contract between two parties to exchange at some fixed

date a given quantity of a commodity for a price defined today . The price agreed upon is

called delivery price, which is equal to the forward price at the time the contract is

entered into.

A futures contract has the same general features as a forward contract but is

transacted through futures exchange as a forward contract. Forward contracts have

evolved and have been standardized into what we know today as futures contract.

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Origin of Futures Trading

Origin of forward contract is not known. However it is known that forward

contracts were used in rice in seventeenth century Japan. Modern forward / futures

agreement began in Chicago in 1840s, with appearance of rail roads. Chicago being

centrally located emerged as the hub between Midwestern farmers and producers and the

east coast consumers’ population centers. Grain dealers in Illinois were having trouble

financing their grain inventories. The risk of grain prices falling after harvest made

lenders reluctant to reduce the risk exposure, grain and grain dealers began selling “To

Arrive” contracts which the future specified the future date (usually the month) a specific

quantity in the contract. This reduced their risk exposure and made it easier to obtain

credit to finance. The “to Arrive” contracts were a forerunner of the futures contracts

traded today. Although dealers found it advantageous to trade what essentially were

forward cash contracts in various commodities, they soon found these forward cash

contract markets inadequate and formed futures exchanges.

The first futures exchange was the Chicago Board of Trade (CBT), formed in

1848. From there on many futures exchanges were established throughout the world in

the decades that followed. The major commodity exchanges for Agriculture commodities

are Chicago Board of Trade, Dalian Commodity Exchange, Kansas City Board of trade,

Minneapolis Grain Exchange, National Commodity and Derivative Exchange India, for

grains and oilseeds ; Chicago Mercantile Exchange for Livestock, etc.

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History of futures trading in India

Commodity futures trading in Indian is almost as old as that in the United States.

India’s first organized futures market was that Bombay Cotton Trade Association Ltd,

which as set up in 1875. Futures trading in oilseeds started with the setting up of Gujarati

Vyapari Mandal in 1900. Gold futures trading began in Mumbai in 1920. During the first

half of the 20th century there was several commodity exchange trading in jute, pepper,

turmeric, potatoes, sugar, etc. The futures market in India underwent rapid growth

between the period of First and Second world wars. As a result, before the outbreak of the

Second World War, a large number of commodity exchanges trading futures contracts in

several commodities like cotton, groundnut oil, saw jute, jute goods, castor seed, wheat,

rice, sugar, and precious metals like gold and silver were flourishing throughout the

country. In view of the delicate supply situation of major commodities in the backdrop of

war efforts mobilization, futures trading came to be prohibited during the Second World

War under Defense of India Act. After independence especially in the second half of

1960s the commodity futures trading again picked up and there were thriving commodity

markets. However in 1966 the commodity trading in several commodities like cotton,

jute, edible oilseeds, etc. came to be banned and future trading continued only in pepper

and turmeric, as the government felt that there markets were increasing the price and also

there was widespread shortage of essential commodities.

A select few commodities saw a reintroduction of futures in 1980 following the

Khusro committee’s report. All that began to change with liberalization of the Indian

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economy in the early 1990’s. In 1993 the Khabra committee was appointed to look into

forwards markets. The committee recommended in 1994 that all futures banned in 1966

be introduced as well as many others added. Six years later, the National Agricultural

Policy 2000 envisioned the removal of price controls in agricultural markets and

widespread use of futures contracts. Since its establishment in 1995, the separate

Department of Consumer Affairs, Food and Public distribution has been working at the

promotion of futures trading. In pursuance there of Government of India, by a

notification dated 1.4.2003 permitted additional 54 commodities for futures trading. The

National Multicommodity Exchange of India limited (NMCE), Multicommodity

Exchange of India Limited (MCX) and National Commodity and Derivatives Exchange

Limited (NCDEX), have been working since 26th November 2002, 10th November 2003,

and 15th December 2003. Currently there are five major national level commodity

exchanges and 16 regional exchanges operating in India.

Table 1:The five major National level commodity exchanges

Commodity Exchange Commodities

National Multicommodity Exchange of

India limited (NMCE), Ahmedabad

Gur, RBD Pamolein, Groundnut Oil,

Sunflower Oil, Rapeseed/Mustardseed, its

Oil, oil-Cake, Soy bean, Soy Oil, Copra,

CottonSeed, Safflower, Groundnut, Sugar,

Sacking, Coconut oil, Castorseed, Castor-

oil, Groundnut oilcake, Cottonseed oil, 7

Sesamum (Til or Jiljili), Sesamum oil,

Sesamum OilCake, Safflower OilCake,

Rice Bran Oil, Safflower Oil, Sanflower

OilCake, Sunflower Seed, Pepper, Crude

Palm Oil, Guarseed, CastorOil Cake,

Cottonseed – Oilcake, Vanaspati, Soybean

Oilcake, Rubber, , Linseed Oil, Linseed,

Oilcake, Coconut Oilcake Rice, Wheat,

Cardamom, Masoor, Urad, Tur / Arhar,

Moong, Rapeseed – 42, Raw Jute

Multicommodity Exchange of India

Limited (MCX),Mumbai

RBD Pamolein, Groundnut Oil, Pepper

Domestic-MG1, Soy bean, Kapas,

Castorseed, Castor-oil, Crude Palm Oil,

Guarseed, Cottonseed – Oilcake, Rubber,

Rice, Wheat, Ref Soya oil – Indore, Urad,

Tur / Arhar, Castorseed-5 , Yellow Peas,

Long Staple Cotton, Medium Staple Cotton

National Commodity and Derivatives S06 L S Cotton, J34 M S Cotton, Crude

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Exchange Limited (NCDEX), Mumbai Palm oil, RBD P'Olein, EXP R/M oil,

Rape/Mustard seed, Ref Soya oil, Soy bean,

Rubber, Pepper, Gram(Chana), Guarseed,

Jute, Turmeric, Castorseed, Raw Jute, Guar

Gum, Sugar M Grade, Urad, Sugar S

Grade, Yellow Peas, Wheat SMQ, Soy

Meal

Indian Commodity Exchange

Limited(ICEX), New Delhi

Mustard oil, soy oil, Raw jute, Mentha oil

Ace Derivatives and Commodity

Exchange limited (ACE), Ahmedabad

Castor seed, mustard seed, Refined soy oil,

soy oil, Channa, turmeric, Sugar, Guar

seed, guar gum

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Table 2: 16 regional commodity exchanges

Commodity Exchange Commodities

Bikaner commodity Exchange Ltd.,

Bikaner

Mustard seed its oil & oilcake, Gram. Guar

seed. Guar Gum

The Bombay Commodity Exchange Ltd.,

Mumbai

Oilseed Complex

* Castor oil international contracts

The Chamber of Commerce, Hapur Gur , Potatoes and Mustard seed

Central India Commercial Exchange Ltd.,

Gwalior Gur and Mustard seed

The East India Cotton Association Ltd.,

Mumbai Cotton

The East India Jute & Hessian Exchange

Ltd., CalcuttaHessian & Sacking

The First Commodities Exchange of India

Ltd., Kochi Copra/coconut, its oil & oilcake

Haryana Commodities Ltd., Hissar Mustard seed complex

India Pepper & Spice Trade Association, Pepper (both domestic and international

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Kochi (IPSTA) contracts)

The Meerut Agro Commodities Exchange

Ltd., MeerutGur

National Board of Trade, Indore

Soya seed, Soyaoil and Soya meals.

Rapeseed/Mustard seed its oil and oilcake

and RBD Palmolien ( see table 3)

Rajkot Seeds, Oil & Bullion Merchants

Association, Rajkot

Castor seed, Groundnut, its oil & cake,

cottonseed, its oil & cake, cotton (kapas)

and RBD palmolein.

Rajdhani Oils & Oilseeds Exchange Ltd.,

Delhi Gur, Mustard seed its oil & oilcake

Surendranagar Cotton Oil & Oilseeds ,

Surendranagar

Cotton, Cottonseed, Kapas

The Spices & Oilseeds Exchange Ltd.,

Sangli. Turmeric

Vijai Beopar Chambers Ltd.,

Muzaffarnagar Gur, Mustard seed

11

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Contribution of commodity exchanges to Indian GDP was 1.2 percent in 1999 and this went upto 10percent in 2007-08. The growth in the volume of trade was 823 percent from 2001-01 to 2010 -11.

Characteristics of commodities permissible under futures trading

The commodities permissible under future trading must satisfy the following conditions

i) Commodities should be in plentiful supply. If a commodity is in short supply, a few

traders may corner the whole supply and charge any price they like to the buyer.

ii) The commodity should be homogenous and capable of being graded so that its future

deliveries may be made without problems regarding quality.

iii) The commodity must have minimum perishability i.e. it must be storable for future

delivery.

iv)The commodity should have a large demand from a number of independent consumers

so that a single buyer may not be in a position to impose his terms for his purchase.

v) The supply of the commodity should not be controlled by a few large firms. It should

be available with a large number of suppliers.

vi) The price of the commodity should be liable to fluctuations over a wide range

vii) There should be free flow of the commodity to and from the market without any

outside interference/ control.

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Futures price

Futures prices evolve from the interaction of bids and offers emanating from all

over the country. The bid and offer prices are based on the expectations of prices on the

maturity date. In determining the futures price, market participants compare the current

futures price to the spot price that can be expected to prevail at the maturity of the futures

contract. In other words, futures markets are forward looking and the futures price

embeds expectations about the future spot price. If spot prices are expected to be much

higher at the maturity of the futures contract than they are today, the current futures price

will be set at a high level relative to the current spot price. Lower expected spot prices in

the future will be reflected in a low current futures price (Black, 1976). Inventory

decisions link current and future scarcity of the commodity and consequently provide a

connection between the current spot price and the expected future spot price.

Two methods generally used for predicting futures prices are fundamental

analysis and technical analysis. The fundamental analysis is concerned with basic supply

and demand information, such as, production and consumption, import and export

patterns, weather conditions, and relevant policies of the government like taxation.

Technical analysis includes analysis of movement of prices in the past. Many participants

use fundamental analysis to determine the direction of the market, and technical analysis

to time their entry and exist.

An important part of understanding futures and cash price dynamics is being able

to explain and anticipate cash/futures basis movement. Basis is normally calculated as

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cash price minus the futures price. As the futures contract approaches its maturity date,

the difference between the two prices gets smaller as the cost of carry becomes smaller.

At maturity, the difference between the two diminishes to zero because spot and futures

prices converge. While spot and futures prices might significantly diverge over the life of

the futures contract, futures prices have to converge to spot prices once the contract

expires. This theoretical connection between the spot and the futures prices is a long-run,

rather than a short-run, concept.

In the short-run, there might be deviations between spot prices and futures prices

caused by thin trading, lags in information transmission, insufficient inventory levels,

seasonal patterns of consumption and many such factors, which may cause the markets to

function inefficiently. But, in the long-run, spot and futures prices are driven by the same

fundamentals, such as interest rates, macroeconomic variables and oil reserves, because

futures prices represent nothing but the expectations of the future spot prices of the

physical commodity. Thus we should expect spot and futures prices for any commodity

to be linked through a long-run equilibrium relationship.

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Procedure of trading

Initially the person (farmer/trader/exporter, etc.) interested in doing futures

trading, will have to take a commodity account. Then he has to choose a broker who

already has membership with the commodity exchange. He can also get list of members

from the exchange and choose from them. He will have to enter into a normal account

agreements with the broker. The person starts the trading by paying the margin which is

prescribed for the commodity which he is intended to trade on. There is minimum and

maximum limit of quantities of commodities which has to be traded by a person. Also he

has to make it clear at time of contract (buying or selling), whether delivery is intended or

not. There can be cash settlement or physical delivery. At the maturity of the contractor

or end of settlement, profit or loss or the due date rate are either credited or debited to the

account. The settlements are carried out by the clearing house.

Table 3: Some commodities with their trading unit and delivery centres

Commodities Exchange Unit of

trading/

delivery

unit

Quotation/

Base value

Maximum

order size

Delivery centres

Pepper NCDEX 1000kg

=1MT

Rs/

Quintal

50 MT Kochi, Calicut ,

Trissur

Pepper NMCE 1 MT Rs/ 50 MT

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Quintal CWC Warehouses

located in

Cochin/Ernakulam,

Kottayam, Calicut,

Malapuram &

Trissur

Rubber MCX 1MT Rs/

Quintal

50 MT Cochin, Calicut,

Trissur, Kottayam,

Manjeri, Palghat,

Thodupuzha, Pala,

Muvattupuzha,

Chalakudy,Irritty,

Mangalore

Rubber NMCE 1MT Rs/Quintal 50 MT Kochi, Calicut,

Kottayam,

Malappuram, Trissur

Rubber NCDEX 1 MT Rs/

Quintal

Calicut, kottayam,

Thrissur, Manjeri,

Palakkad

Cardamom NMCE 100 kg Rs/Kg

5000kg Vandanmedu, Idukki

Cardamom MCX 100 Kg Rs/Kg 5000kg Vandanmedu, Idukki 17

district &

Bodinaykannur,

Madurai district

Copra NMCE 1MT RS/Quintal Calicut

Coffee NMCE 1500kg Rs/Quintal Kushalalnagar(coorg),

HassanAnd

Chikmagalur in

Karnataka, Kalpetta

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Role of clearing house

Clearinghouse is the organizational set up adjunct to the futures exchange which

handles all back-office operations including matching up of each buy and sell

transactions, execution, clearing and reporting of all transactions, settlement of all

transactions on maturity by paying the price difference or by arranging physical delivery ,

etc., and assumes all counterparty risk on behalf of buyer and seller. It is important to

understand that the futures market is designed to provide a proxy for the ready (spot)

market and thereby acts as a pricing mechanism and not as part of, or as a substitute for,

the ready market. The buyer or seller of futures contracts has two options before the

maturity of the contract. First, the buyer (seller) may take (give) physical delivery of the

commodity at the delivery point approved by the exchange after the contract matures.

The second option which distinguishes futures from forward contracts is that the buyer

(seller) can offset the contract by selling (buying) the same amount of commodity and

squaring off his position. For squaring of a position, the buyer (seller) is not obligated to

sell (buy) the original contract. Instead, the clearinghouse may substitute any contract of

the same specifications in the process of daily matching. As delivery time approaches,

virtually all contracts are settled by offset as those who have bought (long) sell to those

who have sold (short). This offsetting reduces the open position in the account of all

traders as they approach the maturity date of the contract. The contracts, if any, which

remain unsettled by offset until maturity date are settled by physical delivery. The

clearinghouse plays a major role in the process explained above by intermediating

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between the buyer and seller. There is no clearinghouse in a forward market due to which

buyers and sellers face counterparty risk. In a futures exchange all transactions are routed

through and guaranteed by the clearinghouse which automatically becomes a counterpart

to each transaction. It assumes the position of counterpart to both sides of the transaction.

It sells contract to the buyer and buys the identical contract from the seller. Therefore,

traders obtain a position vis -à-vis the clearing house. It ensures default risk-free

transactions and provides financial guarantee on the strength of funds contributed by its

members and through collection of margins marking-to-market all outstanding contracts,

position limits imposed on traders, fixing the daily price limits and settlement Guarantee

fund.

The organizational structure and membership requirements of clearinghouses vary from

one exchange to the other. The Bombay Commodity Exchange and Cochin pepper

exchange have set up separate independent corporations (namely, Prime Commodities

Clearing Corporation of India Ltd, and First Commodities Clearing Corporation of India

Ltd., respectively) for handling clearing and guarantee of all futures transactions in the

respective exchanges.

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Margin

Margins (also called clearing margins) are good faith deposits kept with a

clearinghouse usually in the form of cash. They range from 5- 15% of the trade value.

There are three types of margins to be maintained by the trader with the clearinghouse:

initial margin and maintenance or variation margins. Initial margin is a fixed amount per

contract and does not vary with the current value of the commodity traded. Margins are

deposited with the clearing house in advance against the expected exposure of the trading

member on his account and on account of the clients. This amount in turn is collected

from the clients by the member who executes trade for them. Generally, the margin is

payable on the net exposure of the member. Net exposure is the sum of gross exposure

(buy quantity or sale quantity, whichever is higher, multiplied by the current price of the

contract) on account of trades executed through him for each of his clients and gross

exposure of trades carried out on his own account. However, for squaring-off transactions

carried out only at the clients’ level, fresh margins are not required. The margin is

refundable after the client liquidates his position or after the maturity of the contract.

Maintenance margin which usually ranges from 60 to 80 per cent of initial margin

is also required by the exchange. Variation margin is to compensate the risk borne by the

clearinghouse on account of price volatility of the commodity underlying the contract to

which it is a counterparty. A debit in the margin account due to adverse market

conditions and consequent change in the value of contract would lead to initial margin

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falling below the maintenance level. The clearinghouse restores initial margin through

margin calls to the client for collecting variation margin. In case of an increase in value

of the contract, marking-to-market ensures that the holder gets the payment equivalent to

the difference between the initial contract value and its change over the life time of the

contract on the basis of its daily price movements. If the member is not able to pay the

variation margin, he is bound to square off his position or else the clearing house will be

liquidating the position.

The margins have important bearing on the success of futures. As they are non-

interest bearing deposits payable to the clearinghouse up-front working capital of any

trading entity gets blocked to that extent. While a higher margin requirement prevents

traders from participating in trading, a lower margin makes the clearinghouse vulnerable

to any default due to its weak financial strength otherwise. Internationally, many

developed exchanges maintain a low margin on positions due to their better financial

strength along with massive volume of trade resulting in large income accruing to them.

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Participants in the Commodity Futures Market

There are three broad categories of participants in the futures markets, namely

hedgers, speculators and arbitragers. Hedgers are those who have an underlying interest

in the specific adverse price fluctuations. Example could be stockiest, exporters,

producers, etc. They require some people who are prepared to accept the counter party

position. Speculators are those who may not have an interest in the ready contracts i.e.,

the underlying commodity, etc. but see an opportunity of price movement favourable to

them. They provide depth and liquidity to the market. While some hedgers from demand

and supply side may find matching transactions, they by themselves cannot provide

sufficient liquidity and depth to the market. Hence, the speculators who are essentially

expert market analysers take on the risk of hedgers for future profits and there by provide

a useful economic function and are an integral part of the future market. It would not be

wrong to say that in the absence of speculators, the market will not be liquid and may at

times collapse. Arbitrageurs are those who take simultaneous sale and purchase in two

markets so as to take and benefit from price imperfections. In the process they help,

remove the price imperfections in different markets. For example, the arbitrageurs help in

bringing the prices of contracts of different months in a commodity in alignment.

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Hedging and speculation

Hedging is a trading technique of transferring the price risk. It protects from

extreme crash in prices. Hoffman defines Hedging as the practice of buying or selling

future to offset an equal and opposite position in the cash market and thus avoid the risk

of uncertain changes in prices. It protects the hedger from sustaining loss and enables him

to earn his normal trade profits. One example should make the operation and logic of

hedging clear.

Suppose, a pepper trader contracts a deal with some overseas firm in October

2011 to supply 100 Kg of black pepper at price of Rs 36850 per lot to be shipped in

December 2011. In order to protect himself from a possible loss he buys pepper futures at

a ruling price of say Rs 37100 per lot. Now in the month of Dec 2011, he discovers that

the ruling spot price of cotton is Rs 37800 per lot. As he had contracted to ship 1000

quintals at a price of Rs 36850 he loses Rs 950 on this deal. But the future price also has

moved up to Rs 38050 per lot in sympathy with the spot / ready or cash prices. He sells

cotton futures at Rs 38050 (which he has purchased at Rs 37100 per lot) and gains Rs 950

per quintal. This way, his loss on the spot or ready or cash market is compensated by the

gain in futures market.

The fundamental idea under speculation is the purchase or sale of a commodity at

the present price with the object of sale or purchase at some future date at a favourable

price. The speculator is normally concerned with profit making from price movements.

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The difference in the prices prevailing at two times constitutes his profit .expect in a few

cases; the physical delivery of produce is neither taken nor given. Only difference in the

prices is paid or taken. Speculators buy at a current price in anticipation of a rise in prices

in the future which results in pushing up the current prices. This encourages production

and discourages consumption. Other speculators, who sell in the present period in the

expectation of a fall in the future prices, bring about a fall in the current prices, which

encourages consumption and discourages production. The sum totals of the effects of

these speculative activities result in dampening price fluctuations.

.

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Delivery

The exchange may prescribe tender days and delivery period for each contract

month during which a seller who wishes to tender delivery may issue delivery orders

through specific clearing members. Tender days and delivery period end on or before the

last day of trading of the relevant contract month. All contracts outstanding at the end of

the last trading day of the contract month of the maturing contract will be closed-out at

the due date rate as per the contract specifications. The relevant authority prescribes a

penalty on sellers with outstanding positions who fail to issue delivery orders; the

exchange may financially compensate the buyers who hold outstanding positions and

intended to lift delivery but could not receive delivery orders against such positions due

to a failure on the part of the seller.

In Case of Cash Settlement

The buyer who fails to accept delivery orders is required to pay the difference

between the settlement price and the due date rate. In addition, the buyer will have to pay

a penalty, as ascertained by the exchange. The seller, who tenders the delivery document,

is compensated with the penalty recovered from the buyer, while the delivery is

returned to the seller. Failure to pay the dues and penalties relating to such closing out

within the stipulated period causes the member to be declared a defaulter, and renders

him liable for disciplinary action.

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In Case of Physical Delivery

An exchange member desiring to tender goods against an open short position in

the maturing contract sends delivery orders to the clearing house through the clearing

member up to such time on the stated tender days. The delivery order forms duly signed

by the sellers or seller’s representative, holding short open positions, should offer the

following particulars, in addition to the particulars in the delivery order:

_ the quality and quantity of goods to be delivered

_ delivery order rate (to be filled in by the clearing house)

_ name of the seller issuing the delivery order

_ period of delivery

_ the address or addresses of the warehouse(s) or any storage place where the goods are

kept and the quantity there of at each warehouse

_ the name and address of the seller’s representative who should be contacted by the

buyer for collecting the delivery

A seller is entitled to offer delivery only at the exchange determined the delivery

centers. The delivery can be tendered at these specified centers, strictly as per the

contractual delivery procedure. Before tendering delivery, the seller is also required to

obtain a certificate from a surveyor empanelled by the exchange and this certificate has to

be accompanied with the delivery order being tendered to the clearing house. The

surveyor’s certificate clearly specifies the quality of the goods tendered and also confirms

that such quality is tenderable as per the contract specification of the exchange. In case of

non-compliance with any of these conditions, the delivery order is rejected and initiate

27

clearing members shall, in turn, assign the full quantity of goods covered by the delivery

orders to their clients holding outstanding long positions.

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Some initiatives to involve farmers

The commodity futures was even though formed for providing hedging facility

for farmers, the speculators form the major group of participants. There were few

initiatives by the Multicommodity exchange of India to involve and create awareness

among farmers. MCX and India Post formed a strategic alliance to create rural service

centers, ‘Gramin Suvidha Kendra’ (GSK) aimed to ensure benefits of commodity

exchanges’ reach the recesses of rural India, through a single-window service for

farmers’ pre- and post-harvest requirements. By providing price information, GSK

benefits farmers by helping them decide what to sow and when to sell. GSK also provides

services such as addressing technical queries, scientific warehousing facilities, and

quality agri/ non-agri inputs and bank loans.

A pilot project was undertaken in Surendranagar, in Maharashtra involving 67

cotton growers. This multi-stakeholder pilot project was enabled by associations among a

number of institutional entities namely Sajjata Sangh, Aga Khan Rural Support

Programme India [AKRSP(I)], Multi Commodity Exchange (MCX), National Bank for

Agriculture and Rural Development (NABARD), Cardinal Edge Management Services

and a Farmer’s Federation from Chotila taluka of Surendranagar. The main activities

planned under this initiative were access to market information, awareness creation &

training; institutional development, formation of linkages with professional service

providers and institutions; adoption and trial of price hedging through commodity

derivatives, validation and reconfiguration of existing commodity derivative contracts.

29

Based on the insights from this project, the following institutional structure design was

developed for future projects.

The first-tier of collective organization will be at an individual futures contract

level where either an individual participant or his representative will act on his behalf for

communicating trading decision information upwards. At the second-tier, the participants

in a collective hedging program must organize themselves ideally at a village level to

ensure smooth flow of market information downwards from the more informed

stakeholders and trading decision information upwards from the individual participant or

the representative designated by the joint participants under a common futures contract.

The village level representatives may be federated at a higher-tier (third-tier/apex-level)

for coordination, monitoring, course correction, and evaluation. The program is collective

only in the sense of aggregating the technical support and other service requirements

associated with hedging. The decision-making may however be completely decentralized

and individual-futures-contract-based in order to delegate responsibility to participant(s)

30

in an individual futures contract for its/their own gains or losses. The margin

requirements and corresponding futures trading operations have to be likewise managed

by participant(s) in any individual futures contract.

31

Economic Functions:

In a free market economy, Futures trading performs two important economic

functions, viz., price discovery and price risk management. Such trading in

commodities is useful to all sectors of the economy.

The forward prices give advance signals of an imbalance between demand and

supply. This helps the government and the private sector to make plans and arrangements

in a shortage situation for timely imports, instead of having to rush in for such imports in

a crisis-like situation when the prices are already high. This ensures availability of

adequate supplies and averts spurt in prices.

Similarly, in a situation of a bumper crop, the early price signals emitted by

futures market help the importers to defer or stagger their imports and exporters to plan

exports, which avoid glut situations and ensures remunerative prices to the producers.

At the same time, it enables the importers to hedge their position against

commitments made for import and exporters to hedge their export commitments. As a

result, the export competitiveness of the country improves.

Benefits of futures market

The primary benefit of futures markets is to allow for anticipatory hedging in a

free-market price regime. By taking a position in the futures markets that is opposite to

that held in the spot market, the producer can potentially offset losses in the latter with

gains in the former. Futures markets thus offer a mechanism for dealing with price risk.

32

Futures markets also play a role in inventory management. The basis or price

spread, which is the price difference between futures contracts of different maturities,

signals the availability of stocks to the market. In essence, the basis is a measure of

storage and interest costs that must be borne by a spot market trader in holding stocks

now, for sale at some point in the future. Clearly, as the basis gets larger, the incentive to

store increases; as a result, the level of inventories held in the spot market will be

determined by the basis. This ensures an efficient process of private storage and in turn

leads to a smoother pattern of prices in the spot market and hence can, potentially, reduce

price volatility.

Futures markets can also provide price support for credit needs to small

producers. In fact, better access to credit has been driving demand for commodity price

hedging in the developed market economies. The collateral value of inventory is

substantially enhanced if it is hedged, enabling firms (/farmers) to borrow a larger

proportion of inventory value on more attractive terms.

There are other wider benefits to the economy of a more efficient allocation of

resources that could arise from establishing or using futures markets. When a commodity

is produced and then sold on a spot market, there is considerable risk that in the time

between a production decision being taken and the output being sold, prices could have

moved against the trader. This spot price risk creates problems for producers who do not

know what their income levels will be and this hinders their planning process. An

efficient futures market provides reasonably accurate indications of the future spot price

and thus helps in production planning.

33

Derivative market helps to keep a stabilising influence on spot prices by reducing

the short-term fluctuations. In other words, derivative reduces both peak and depths and

leads to price stabilisation effect in the cash market for underlying asset.

Benefits to the farmers and other stakeholders:

Farmers and growers also benefit through the price signals emitted by the futures

markets even though they may not directly participate in the futures market. The futures

markets, through advance price discovery lead to a shift in sale-purchase patterns during

harvest and lean seasons and thereby facilitate reduction in the amplitude of seasonal

price variation and help the farmer realize somewhat better price at the time of harvest.

These price signals help the farmer in planning his cultivation in advance as well as to

determine the kind of crop which he should prefer to raise. These signals also help him in

fine tuning his marketing strategy after the harvest. Empowered with the price

information the farmer is able to avoid excess sale immediately after the harvest and is

also able to bargain for better prices from trade in the mandi.

By providing the manufacturers and the bulk consumers a mechanism for

covering price-risks, the futures market induces them to pay higher price to the

producers, as the need to pass on the price-risk to farmers is obviated. The manufacturers

are able to hedge their requirement of the raw materials and as also their finished

products. This results in greater competition in the market and ensures viability of the

manufacturing units.

34

Constraints to farmers and other stakeholders

Regulatory Constraints

The foremost regulatory constraint with respect to participation of farmers

(particularly small and marginal farmers) on commodity exchange are the procedural

hurdles (PAN card requirement, KYC norms compliance, burdensome paperwork etc) for

opening a Demat /trading/bank account. Restriction on participation of financial

institutions (Banks, Mutual Funds, FIIs) also undermines the liquidity on commodity

exchanges and allows trading on many contracts to be exposed to price manipulation and

market cornering. The bans/suspensions on futures trading in commodities of strategic

importance have shaken the confidence of common citizens and physical market players

in the price risk management effectiveness of commodity derivatives. Lack of useful risk

management instrument like options which have proved to be of immense value in

managing risks of farmers and physical market players in other countries restrains

potential hedgers in India by making them vulnerable to the unlimited downside risk

inherent in futures trading.

Policy Constraints

Policy interventions by the Government have a momentous impact on the

direction and magnitude of price movements in commodities. Abrupt policy changes by

the Government generally result in upsetting the market equilibrium leading to the shift

of balance in favor of one or the other counterparty. Uncertainty of Government

interventions acts as a dissuading influence on genuine market participants (including

hedgers) and weakens the free-market behavior of commodity markets.

35

Institutional Constraints

The procedural requirements and the technical complexities involved in

commodity derivatives trading necessitate the presence of institutional entities which can

act as technical support providers for farmer participation on commodity exchanges.

Grassroots organizations like NGOs, cooperatives, agribusiness companies, farmer

organizations have the ability to serve as technical support providers but given their

existing under-preparedness and limited capacities for managing price risk management

initiatives, the fruits of promising initiatives for improving commodity markets in India

may not reach the intended beneficiaries especially the disadvantaged farmers. Hedging

the prices of the forthcoming harvest through futures trading requires the farmer to pay in

the initial margin and Mark-to-Market (MTM) margin upfront. Such requirement is

extremely constraining for farmers keen to hedge their price risks and calls for funding

through institutional financing mechanisms.

Dangers of Future market

The dangers arising out of the futures market are:

i) The futures market opens out the way for a large number of persons with sufficient

means, inadequate experience and information to enter into commitments which may be

beyond their means. In such conditions, market gets demoralized.

ii) It enables unscrupulous speculators, with little interest in the actual supply of, demand

for, a particular commodity, to corner the supplies and organize bear raids and bull raids

36

on the market in the hope of making easy money for themselves. This results in violent

fluctuations in price.

iii) Futures trading are sometimes being quoted as the reason for inflation.

Futures trading causing inflation?

A few recent studies showed that there is no sufficient evidence to suggest that

futures trading leads to inflation.

Trading in commodity derivatives on exchange platforms is an instrument to

achieve price discovery, better price risk management, besides helping macroeconomy

with better resource allocation. Though the volume of commodity futures trade increased

exponentially after the withdrawal of prohibition in 2003, the functioning of futures

markets came under scrutiny during 2006–07 due to price rise and the government has

proposed to impose transaction tax by 0.017 per cent on trading volume in the 2008–09

budget. In this context, the efficiency and futures trading-price nexus for five top selected

commodities namely gold, copper, petroleum crude, soya oil, and chana (chickpea) in

commodity futures markets in India were examined. Results suggest that the commodity

futures market is efficient for all five commodities. Further, we do not have sufficient

evidence to support that futures market leads to higher inflation. (Sahoo and Kumar,

2009)

Of the four commodities (Rubber, Chickpea, potato, soy oil) banned in 2007, only

price of potato decreased that was due to bumper crop (Sreenivasan, 2008)

37

Kiran Karande through his study in 2006 concluded that the castor seed futures

market at Mumbai and Ahmedabad performs the function of price discovery. Also, the

introduction of castor seed futures market has had a beneficial effect on castor seed spot

price volatility. Thus, there is a strong case for promoting derivative markets in India.

The daily price information in spot and futures markets, for a period of 7 years

(2004 – 2010), for 9 major agricultural commodities, taken from different categories of

agri-products, are incorporated into various econometric models to test the concerned

objective. The empirical findings significantly shows that comparative advantage of

futures market in disseminating information, leading to a significant price discovery and

risk management, that can again help to successfully develop the underlying commodity

market in India. Therefore instead of curbing the commodity futures market, it can

always be suggested to strengthen the market structure to achieve the broader target.

(Mukherjee, 2011)

Using dummy variables, the study done by Nath and Lingareddy in 2008 found

that the introduction of future trading in the selected commodities had apparently led to

increase in price of commodity like urad but the same is not true for wheat and gram. The

spot prices of all three commodities under study have increased in the post futures period

though except for urad, the dummy variables are not found statistically significant. The

spot prices of these commodities declined after the ban on futures trading was introduced.

However, the price volatility increased significantly during the period when futures were

allowed. There has been a sharp fall in volatility after the ban of futures in these

commodities. Although gram prices too have posted a moderate rise in the post-futures

38

trading period, the impact was not found statistically significant. Although a similar

increase was observed in case of wheat, steep fall in supply coinciding the same period

thus bringing ambiguity in the inference. The study also finds that the introduction of

futures in commodities under our study has not affected the seasonal/cyclical fluctuations

of the commodities under our study.

But a study done by Eashwaran and Ramasundaram 2008 contradictorily found

that price discovery doesn’t take place in agriculture commodity futures. Thin volume,

low market depth, infrequent trading lack of effective participation of trading members,

lack of awareness among farmer, no well developed spot market in vicinity of futures

market, poor physical delivery, absence of well developed grading and standaradization

system and market imperfection were reasons stated.

Conclusion

Large participation of farmers and local traders is essential to realize the

objectives of futures trading. As the rule of thumb 50 percent delivery should be taking

place. But the actual delivery is only around 2 percent. This shows that the growth

attained will not remain if sustainable measures are not taken. Therefore NGO’s,

cooperatives, and famers organization should be motivated and trained in doing futures

trading. Government should setup modern warehouses in the villages which can facilitate

the trading. The regulatory and policy measure suitable for futures trading should be

taken by the government, thus facilitate a transparent and efficient price discovery. Only

39

this can propel the commodity futures trading and the economic functions of price

discovery and avoidance of price risk would be proper.

40

Discussion

1. How can the small farmers be benefitted by this future trading?

Small farmers can form cooperatives or farmers group and collectively trade through the

futures market. Margin and profit or loss should be shared.

2. Can’t the speculators or traders collectively try to decrease or increase the price of

commodities according to their wish?

It is possible if the participation of farmers is low. We need to increase the farmers and

traders participation to maintain the efficient functioning of the commodity market.

3. Is there any place where farmers are actively involved in futures trading through

cooperatives or NGO?

Yes, in Kerala, Pala marketing cooperative society is actively involved in futures trading

of rubber.

4. What is margin for crops like pepper, cardamom, and rubber?

It is decided by exchange based on the price of commodities fluctuations in the price and

risk associated with it. It keeps on changing.

5. How will the people involved decide the price beforehand?

Traders or speculators associated with the futures trading through fundamental and

technical analysis find the availability of commodity or what will be the production and

flow of commodities to market and accordingly arrive at a price.

6. Isn’t the procedure of trading complex for ordinary farmers?

41

Yes it is initially. But they can be trained. There should active involvement of NGOs in

this field also. Training should be provided to NGOs and personnel from the NGOs can

act as technical support to farmers along with training them.

7. Can we know futures price through any other source?

Yes there is provision of live market watch through the websites of every national

exchange.

8. What role does the commodity market play or how will the price determined when

some natural calamity occurs?

When calamity occurs, and if it affects crop production, naturally there will be dearth of

the commodities so the price of commodities increase. Farmers can benefit from high

price.

9. What if the farmer loses his crop in the above mentioned situation?

Then futures trading have nothing to do with that. Government will provide the farmers

with relief fund.

10. The recent surge in cardamom price, is there any role of speculators in that?

Not sure about that, could not get any article supporting that view.

11. If there is high demand for commodity for export, will it lead to rise in price? Won’t

it affect the domestic consumers?

Yes, definitely the price will increase there is an increased demand for export but if it

eventually affect the consumer then the government will restrict/ ban the export. Recently

the export of rice was banned by the government.

42

References

Acharya,S.S. and Agarwal,N.L. 2004. Agricultural Marketing in India (4th Ed.).Oxford and

IBH Publishing Co. Pvt. Ltd., New Delhi, 506p.

Annual report 2009-2010. Forward Market Commisssion. Ministry of Consumers, Food and

Public administration. Government of India

Ahuja, N. L. 2005. Commodity Derivatives Market of India: Development, Regulation and

Future prospect. Available: http://www.aryanhellas.com/107/na.pdf

Atkin, M. 1989.Agricultural Commodity Markets: A Guide to Futures Trading. Routledge,

New York. 249p.

Baskara M. 2007. Commodity futures trading in India: A role of national commodity

exchanges. MBA (agri-business) thesis. University of Agricultural Sciences,

Dharwad.154p.

Bose, S. 2008. Commodity Futures Market in India: A Study of Trends in the Notional

Multi-Commodity Indices. Money & Finance, ICRA Bulletin, 3( 3): 126-158.

Cardinal management services (P) LTD. 2008. Enabling farmers to Leverage Commodity

Exchanges. Final Report submitted to Multicommodity Exchange of India

Ltd.Mumbai.

Chakrabarti, R. 2005. Commodity Futures in India. Social Science Research Network.

Available at SSRN: http://ssrn.com/abstract=649856

Easwaran S. R. and Ramasundaram P. 2008. Whether commodity Futures Market in

43

Agriculture is efficient in Price discovery ? – An Econometric Analysis. Agricultural

Economics Research Review. 21: 337-344

FMC [Forward Market commission]. 2011. FMC homepage[online].Available:

http://www.fmc.gov.in [28 Sept 211].

Karande, K. 2006. A study of Futures Market in India. PhD thesis. Indira Gandhi Institute of

Development Research, Mumbai. Social Science Research Network. Available at

SSRN: http://ssrn.com/abstract=983342

Kumar B., Singh P. and Pandey A.2008. Hedging effectiveness of constant and time varying

Hedge Ratio in Indian stock and commodity Futures market. Research Publications.

W. P. No. 2008-06-01. IIM, Ahmedabad

MCXINDIA [Multicommodity Exchange of India]. 2011. MCXINDIA homepage [online]

Available: http://www.mcxindia.com[28 Sept 2011].

Mintert, J., Waller, M. and Borchardt, R. 1998. Introduction to futures market. Western

Risk Management Library (on line) Available :

http://agecon.uwyo.edu/riskmgt/marketrisk/IntroductiontoFuturesMarkets.pdf (18

Sept. 2011)

Mishra, A. K., 2008.Commodity Futures Markets in India: Riding the Growth Phase.

Proccedings of an International Conference on Commodity Future: Riding the

Growth Phase. Social Science Research Network Available:

http://ssrn.com/abstract=1090843

44

Mukherjee, K. N. 2011. Impact of futures trading on Agricultural Commodity Market. Social

Science Research Network. Available at SSRN: http://ssrn.com/abstract=1763910

Nath, G. C. and Lingareddy, T. 2008. Commodity Derivative Market and its Impact on Spot

Market. Social Science Research Network. Available: SSRN:

http://ssrn.com/abstract=1087904

NCDEX [National Commodity Derivative Exchange ]. 2011. NCDEX homepage[online]

Available: http:/www.ncdex.com [29 Sept 2011]

NMCE [National Multicommodity Exchange]. 2011. NMCE homepage[online] Available:

http://www.nmce.com[29Sept 2011]

NFA [National Futures Association]. 2006. Opportunity and Risk: An Educational guide to

Futures Trading and Options on Futures. NFA, Illinois. 96p. Available:

http://www.nfa.futures.org/nfa-investor-information/publication-library/opportunity-

and-risk-entire.pdf

Pawan, D. and Nagpal, M. 2010. Is the Pepper Commodity Market Efficient: A

Cointegration Analysis. Summer Internship Project. Centre for public policy. Indian

Institute of Management, Bangalore

Pradeep Unni (pradeepunni@gmail.com). 2011, Sept 20. Commodity Markets – Future of

Futures Market [Personal email, accessed on 20 Sept. 2011]

Roy, A. 2005. Dynamics of spot and future markets in Indian wheat Market: Issues and

Implications. Social Science Research Network. Available at SSRN:

45

http://ssrn.com/abstract=1178762

Sahadevan K. G.2002. Derivatives and Price Risk Management: A Study of Agricultural

Commodity Futures in India. Seed money project report. IIM, Lucknow

Sahoo, P. and Kumar, R. 2oo9. Efficiency and Futures trading – Price Nexus in Indian

Commodity futures Markets. Global Business Review 10(2): 187-201

Sreenivasan S. 2008. Futures trading in Agricultural commodities: Is the Government ban on

commodities trading logical ?. Research internship Report. Centre for Civil Society.

46

KERALA AGRICULTURAL UNIVERSITY COLLEGE OF AGRICULTURE, VELLAYANI

Dept. of Agricultural Economics Credit Seminar- AgEcon 591

Name: Sneha Elizabeth Varghese Date: 22-10-2011

Adm. No. 2010-11-120 Time: 11-12noon

ABSTRACT

FUTURES TRADING: RELEVANCE IN AGRICULTURAL MARKETING

Futures trading is a device for protection against the price fluctuations which

normally arise in the course of the marketing of commodities (Acharya and Agarwal, 2004).

Generally futures trading can be said as the trading through futures contract. Futures contract

is a standardized contract between two parties to exchange a specified asset (commodity) of

standardized quality and quantity for a price agreed today with delivery occurring at a

specified future date. For any commodity to be traded through futures trading has to satisfy

certain conditions like it should be plentiful in supply, it could be stored, it should be

homogenous in nature or should be capable of being graded, there should be large no of

buyers and suppliers. There is a minimum and maximum amount which could be traded

through futures trading.

In India, Forward Market Commission is the regulatory body for futures trading in

commodities. There 21 Commodity Exchange of which five are national level

Multicommodity Exchanges. Wheat, Sugar, Potato, Soy bean, Black gram, Channa, Mustard,

Pepper, Cardamom, Rubber, etc. are some of the major agricultural commodities traded

through futures exchange. In Kerala, there are two regional exchanges Indian Pepper and

47

Spice Trade Association, Kochi for Pepper and The First Commodities Exchange of India

Ltd, Kochi for Copra, Coconut/its oil, oilcake. The total turnover of Commodities trading in

India in 2010-2011 is Rs 119.5 lakh crore. Of this 11.53 percent is contributed by agricultural

commodities.

Futures prices evolve from the interaction of bids and offers emanating from all over

the country. Participants use fundamental analysis to determine the direction of the market,

and technical analysis to time their entry and exit. To determine the futures price, market

participants compares the current futures price to the spot price that can be expected to

prevail at the maturity of the futures contract. Futures price can be expressed as the sum of

spot price and cost of carry minus convenience yield. At maturity, the difference between the

two diminishes to zero i.e. spot and futures prices converge. Then the futures market is

considered to be efficient in price discovery.

Hedging and speculation are the two ways in which the futures trading can be done.

Hedging is a trading technique of transferring the price risk. It is the practice of buying or

selling futures to offset an equal and opposite position in the cash market and thus avoid the

risk of uncertain changes in prices. Hedging by the agricultural producer generally involves

selling the commodity at the commodity exchange market because producers want to lock in

a price floor (a minimum price they will receive).The fundamental idea under speculation is

the purchase or sale of a commodity at the present price with the object of sale or purchase at

some future date at a favourable price. The speculator is normally concerned with profit

making from price movements. The difference in the prices prevailing at two times

constitutes his profit. The physical delivery of produce seldom happens here. Only

48

difference in the prices is paid or taken. Speculators buy at a current price in anticipation of a

rise in prices in the future which results in pushing up the current prices. Other speculators,

who sell in the present period in the expectation of a fall in the future prices bring about a fall

in the current prices. The sum totals of the effects of these speculative activities result in

dampening price fluctuations.

The advantages of futures trading are that, it allows anticipatory hedging and it helps

to keep a stabilizing influence on spot prices by reducing the short-term fluctuations. The

collateral value of inventory is substantially enhanced if it is hedged. An

efficient futures market provides reasonably accurate indications of the future spot price and

thus helps in production planning. Farmers and growers also benefit through the price signals

emitted by the futures markets even though they may not directly participate in the futures

market. The futures markets, through advance price discovery lead to a shift in sale-purchase

patterns during harvest and lean seasons and thereby facilitate reduction in the amplitude of

seasonal price variation and help the farmer realize somewhat better price at the time of

harvest. Empowered with the price information the farmer is able to avoid excess sale

immediately after the harvest and is also able to bargain for better prices from trade in the

market. Apart from the basic functions of price discovery and price risk management, futures

contracts have a number of other benefits like providing liquidity, bringing transparency and

controlling black marketing.

The major disadvantage of futures trading is that unscrupulous speculators, with little

interest in the actual supply or, demand for, a particular commodity, to corner the supplies 49

and organize bear raids and bull raids on the market in the hope of making easy money for

themselves. Also it is not sure to what extend it is helping the farmers in hedging the price

risk.

Conclusion

Large participation of farmers and local traders is essential to realize the objectives of

futures trading. Therefore NGO’s, cooperatives, and famers organization should be

motivated and trained in doing futures trading. Government should setup modern warehouses

in the villages which can facilitate the trading. The regulatory and policy measure suitable for

futures trading should be taken by the government, thus facilitate a transparent and efficient

price discovery. Only this can propel the commodity futures trading and the economic

functions of price discovery and avoidance of price risk would be met.

References

Acharya,S.S. and Agarwal,N.L. 2004. Agricultural Marketing in India (4th Ed.).Oxford and

IBH Publishing Co. Pvt. Ltd., New Delhi, 506p.

Annual report 2009-2010. Forward Market Commisssion. Ministry of Consumers, Food and

Public administration. Government of India

Ahuja, N. L. 2005. Commodity Derivatives Market of India: Development, Regulation and

Future prospect. Available: http://www.aryanhellas.com/107/na.pdf

Atkin, M. 1989.Agricultural Commodity Markets: A Guide to Futures Trading. Routledge,

New York. 249p.

Baskara M. 2007. Commodity futures trading in India: A role of national commodity

50

exchanges. MBA (agri-business) thesis. University of Agricultural Sciences,

Dharwad.154p.

Bose, S. 2008. Commodity Futures Market in India: A Study of Trends in the Notional

Multi-Commodity Indices. Money & Finance, ICRA Bulletin, 3( 3): 126-158.

Cardinal management services (P) LTD. 2008. Enabling farmers to Leverage Commodity

Exchanges. Final Report submitted to Multicommodity Exchange of India

Ltd.Mumbai.

Chakrabarti, R. 2005. Commodity Futures in India. Social Science Research Network.

Available at SSRN: http://ssrn.com/abstract=649856

Easwaran S. R. and Ramasundaram P. 2008. Whether commodity Futures Market in

Agriculture is efficient in Price discovery ? – An Econometric Analysis. Agricultural

Economics Research Review. 21: 337-344

FMC [Forward Market commission]. 2011. FMC homepage[online].Available:

http://www.fmc.gov.in [28 Sept 211].

Kumar B., Singh P. and Pandey A.2008. Hedging effectiveness of constant and time varying

Hedge Ratio in Indian stock and commodity Futures market. Research Publications.

W. P. No. 2008-06-01. IIM, Ahmedabad

MCXINDIA [Multicommodity Exchange of India]. 2011. MCXINDIA homepage [online]

Available: http://www.mcxindia.com[28 Sept 2011].

Mintert, J., Waller, M. and Borchardt, R. 1998. Introduction to futures market. Western

51

Risk Management Library (on line) Available :

http://agecon.uwyo.edu/riskmgt/marketrisk/IntroductiontoFuturesMarkets.pdf (18

Sept. 2011)

Mishra, A. K., 2008.Commodity Futures Markets in India: Riding the Growth Phase.

Proccedings of an International Conference on Commodity Future: Riding the

Growth Phase. Social Science Research Network Available:

http://ssrn.com/abstract=1090843

Nath, G. C. and Lingareddy, T. 2008. Commodity Derivative Market and its Impact on Spot

Market. Social Science Research Network. Available: SSRN:

http://ssrn.com/abstract=1087904

NCDEX [National Commodity Derivative Exchange ]. 2011. NCDEX homepage[online]

Available: http:/www.ncdex.com [29 Sept 2011]

NMCE [National Multicommodity Exchange]. 2011. NMCE homepage[online] Available:

http://www.nmce.com[29Sept 2011]

NFA [National Futures Association]. 2006. Opportunity and Risk: An Educational guide to

Futures Trading and Options on Futures. NFA, Illinois. 96p. Available:

http://www.nfa.futures.org/nfa-investor-information/publication-library/opportunity-

and-risk-entire.pdf

Pawan, D. and Nagpal, M. 2010. Is the Pepper Commodity Market Efficient: A

Cointegration Analysis. Summer Internship Project. Centre for public policy. Indian

52

Institute of Management, Bangalore

Pradeep Unni (pradeepunni@gmail.com). 2011, Sept 20. Commodity Markets – Future of

Futures Market [Personal email, accessed on 20 Sept. 2011]

Sahadevan K. G.2002. Derivatives and Price Risk Management: A Study of Agricultural

Commodity Futures in India. Seed money project report. IIM, Lucknow

Sahoo, P. and Kumar, R. 2oo9. Efficiency and Futures trading – Price Nexus in Indian

Commodity futures Markets. Global Business Review 10(2): 187-201

Sreenivasan S. 2008. Futures trading in Agricultural commodities: Is the Government ban on

commodities trading logical ?. Research internship Report. Centre for Civil Society.

53

54

55