Prices of agricultural commodities cool after Sebi ban on futures

Sebi on Monday suspended futures and options trading for one year in chana, mustard seed, crude palm oil, moong, paddy (basmati), wheat and soybean and its derivatives.

“Price discovery is also going to be very difficult, but since they (the government) are so much worried about this, we can only request the government to review this decision by March 2022,” he said.
“Price discovery is also going to be very difficult, but since they (the government) are so much worried about this, we can only request the government to review this decision by March 2022,” he said.

The suspension of trading in futures and options of select agricultural commodities has not only led to a fall in prices, but also to scaling back of inventories by traders, who say the flow of imports will slow down since they do not have a hedging platform.

Sebi on Monday suspended futures and options trading for one year in chana, mustard seed, crude palm oil, moong, paddy (basmati), wheat and soybean and its derivatives.

Sandeep Bajoria, chief executive of Sunvin Group, a vegetable oil brokerage, said the suspension will make it tough for importers and traders of edible oils to do business since they extensively use the domestic exchanges to hedge their risks. “Price discovery is also going to be very difficult, but since they (the government) are so much worried about this, we can only request the government to review this decision by March 2022,” he said.

“We are confident that prices will go down by March because of bumper mustard and rapeseed crop. Prices of imported soybean and palm oil for December to March shipments are $100 lower than today. This indicates that wholesale prices of soybean and palm oil will fall by Rs 12-14 per kg by March and rapeseed -mustard oil will drop by Rs 25 per kg by March. So, we request the government to review the position by March. If prices fall as we say, then they can reinstate the future trading,” he said. Bajoria felt the ban will result in traders buying less because they cannot hedge and so they will maintain a low inventory which is also counter productive.

Manoj Agrawal, MD, Maharashtra Oil Extractions, said oil prices have gone back to earlier high levels since Malaysia and Indonesia have hiked their rates. If an importer cannot hedge, his imports will be impacted, and that his firm could no longer hedge soyoil on commodity exchanges after buying soybean from farmers. “This step can backfire since traders will not be in a position to import regularly. Oil prices are decided on international factors, he pointed out. Regional processors who buy crops from farmers will also feel the pinch as they are deprived of advance sales through futures contracts.

“If the government wants to protect consumers, it could have used the public distribution system route to help out weaker sections by not imposing duty on these imports. This step, however, has been good for soybean because some strong players were involved in speculative activity,” Agrawal said

Nitin Kalantri, a pulses trader based out of Latur, said this will lead to smaller inventories by stockists and traders, which, in turn, will hurt farmers. If operations are scaled back, it will be difficult for farmers to find buyers. Soybean prices dropped by Rs 400 per quintal after this step was taken, he said, adding that the government is sending out a clear message that it will not tolerate prices getting out of hand.

Soybean prices fell by nearly Rs 400 per quintal following the suspension on futures trading. The average price of soybean in the futures market was Rs 6,350 per quintal two days ago, but now it has come down to Rs 5,950. Soybean prices in the Latur market have fallen from Rs 6,400 to Rs 6,000 per quintal.

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