Futures signal uptrend in agri-commodity prices

The price signals emanating from the commodities futures market may not be very comforting for the government...

The price signals emanating from the commodities futures market may not be very comforting for the government, which is already waging a full-fledged war against inflation. The futures of several key agri-commodities, totalling an average daily turnover of about Rs 1,000 crore, are showing a sharp increase in prices ranging between 12 per cent and 122 per cent over the next two-three months, on an annualised basis.

Analysts said that the futures market was just a messenger and it would be incorrect to infer that prices would necessarily move up in the coming months to the extent indicated by the current futures prices. Moreover, given the spate of bad news hitting the market, speculative activity was perhaps getting concentrated on a few commodities, they said.

Data sourced from the National Commodity and Derivatives Exchange Ltd NCDEX, one of the country8217;s leading bourses, show, for instance, July maize futures closing at Rs 834 per 100 kg, although the spot price on May 9 was just Rs 713. This translates into a price increase of 68 per cent on an annualised basis. For jeera, turmeric and sugar, the price increases, again on an annualised basis, are 32 per cent, 67 per cent and 25 per cent, respectively.

An analyst with a leading commodity brokerage house admits that commodities markets in India have not matured enough to discover an efficient price that would help participants take a rational economic decision. He, however, says that futures contracts of up to two months are more liquid and give a better reflection of prices. Analysts noted that near-month contracts were generally more liquid and, hence, attracted a lot of participants. Further, there is higher volatility close to the maturity of contracts. 8220;This is because the market is fed with more definitive information a week or fortnight before maturity,8221; said an analyst.