National Commodity and Derivatives Exchange (NCDEX) will relaunch the Robusta Cherry AB coffee futures contract for trading from Friday.
Initially, monthly contracts expiring in February, March and April would be made available for trading. The contract will be a compulsory delivery contract and deliverable at Kushalnagar in Karnataka.
Arun Raste, managing director and chief executive officer of NCDEX, said the production of coffee is dominated by small growers in south Indian states, which are vulnerable to price volatility in the domestic market due to its global linkage. The contract being launched would enable these growers to hedge their price risks, individually and collectively. Moreover, as the commodity has a strong global footprint, this would be a significant step in achieving self-sufficiency as far as providing coffee value chain participants with an indigenous source of benchmark pricing is concerned.
Also, with this contract, NCDEX hopes to bring down the complexity of trade and make it easier, Raste said, adding this launch has a special significance from the NCDEX point of view as it marks the exchange venturing into the south for the first time, as Indian coffee is almost entirely produced in Karnataka, Kerala and Tamil Nadu.
The contract will have a daily price limit of 6% (4% + 2%), which means once the price reaches a 4% cap on either side the trading will be halted for a cooling period of 15 minutes, after which another 2% movement can be allowed on the same side until the end of the session. The lot size of the contract has been fixed at 1 metric tonne (MT) in line with physical trade in the commodity.
Kapil Dev, chief business officer at NCDEX, said globally, coffee has been one of the top traded soft-commodity contracts. But in the absence of any hedging tool domestically, the Indian growers had few options available to take benefit of such activities. Even for price discovery, they had to rely completely on international exchanges. As India exports over 60% of the produce, the indigenous coffee futures contract will prove to be a boon for exporters in exercising price risk management domestically.
At around 350,000 tonnes per annum, India accounts for 3.5-4% of the global coffee output pegged at around 10 million tonnes. Karnataka accounts for nearly 71% of the country’s total production followed by Kerala at 21% and Tamil Nadu at 5%. Nearly 65% of the output is exported and the rest is consumed in the country. The demand for coffee has been growing in the domestic market as well and so is the expansion of plantations in non-traditional areas of Andhra Pradesh, Odisha and North-Eastern states.