As a precautionary measure, the commodity markets regulator, the Forward Markets Commission (FMC), has suspended the launch of lean season contracts in soybean. This means, all soybean contracts scheduled to be launched for delivery until September would not be made available for hedging on the exchange platform.
FMC, in a directive to the National Commodity & Derivatives Exchange (NCDEX) and ACE Derivatives and Commodity Exchange (ACE), said, “In order to curb the excessive volatility, the commission has decided not to allow the launch of soybean futures contracts scheduled to be launched in April 2012.”
Soybean price has surged 23 per cent so far this year till Monday to trade at Rs 3,062 a quintal in the spot Indore market, compared to Rs 2,492 a quintal on January 2. Soybean futures have been very liquid on ACE and NCDEX. With this directive, the two exchanges are set to lose substantial volume and turnover. But, like in a previous case when guar was suspended for trade for the remaining part of the season, the business in guar counter shifted to other contracts. The volume and turnover in this case, too, is likely to shift to other counters in agri space.
“This is a welcome move by the regulator,” said Dilip Bhatia, chief executive officer, ACE.
The lean season arrival of soybean to mandis has dried up. According to trade sources, a very small quantity of 1.8-2 million tonnes is left with processors who are not keen on releasing it into the markets. Soybean, a kharif crop, is sown in May and harvested in the beginning of October.
For the new season crop, however, the exchange would require to take fresh approval from the regulator for commencing contracts on their platforms.
The price rise in soybean is largely supported by the movement of the commodity in physical markets. Arrivals have dried up and crushing mills are facing huge supply shortages. Most importantly, the demand of soymeal – a derivative of soybean – has been consistently rising in the global markets. Until now, Iran was getting supply of soymeal from the US. With the political tension between the two countries, Iran has stopped purchases of soymeal from the US and diverted orders to India. As a consequence, global soymeal price surged substantially. Soymeal price in the US ended $2.5 higher at $391.2 a tonne on Friday. Data compiled by ACE show, spot soymeal price shot up by 35.4 per cent to close on Tuesday at Rs 23,893 a tonne, compared Rs 17,646 a tonne on January 27.
A US Department of Agriculture report estimates soybean output in India at 11 million tonnes in 2011, up 12.24 per cent compared to 9.8 million tonnes in the previous year.
Meanwhile, Ajay Kedia, managing director of Kedia Commodity, urged the government to allow participation of large players like banks and domestic institutional investors for deepening the market further, which may control abnormal volatility in prices.