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Indian Sugar
Industry
Future Trading and Sugar
2


       The future trading in commodities is allowed in accordance with the
    provisions of the Forward Contracts (Regulation) Act, 1952.

       In April 2001, the Government of India's Cabinet Committee on Economic
    Affairs (CCEA) and the Ministry of Food permitted futures trading in white
    sugar to stabilize the market and safeguard the interest of farmers, stockists
    and exporters.
Two Major Commodities Exchange in India
3



                  MCX ( Multi Commodity Exchange)




       NCDEX ( National Commodities & Derivative Exchange)
Commodities Traded on the exchanges
4



       Agri Products  Pepper,
        Sugar, Chilli, Turmeric

       Precious Metals  Gold,
        Silver, Platinum

       Base   Metals         Copper,
        Lead, Zinc, Aluminum

       Energy  Crude Oil, Natural
        gas
What are Commodity futures?
5



       A financial contract;

       The underlying commodity is bought and sold at the future
        date;

       A tool used by Investors, Hedgers, Arbitrageurs, Day Traders.
Why future trading in Commodities?
6



       Portfolio diversification and risk management.

       Additional investment opportunity

       Low cost business

       No transportation, storage, insurance, security charges.

       Low margins  high leverage

       Intrinsic value of the commodity

       Domain knowledge of industry.

       Hedging/Arbitrage
Benefits of Future Trading
7


       Price discovery for commodity players

        - A farmer can plan his crop by looking at prices prevailing in the future market.

        Accordingly, a farmer can plan his plantation and put his effort in the right
        direction.
8



       Hedging against price risk
        - A farmers can sell in future to ensure remunerative prices

        - A processor/ manufacturing firm can buy in futures to
        hedge against volatile raw material cost

        - An exporter can commit to a price to his foreign clients

        - A stockist can hedge his carrying risk to ensure smooth
        prices of the seasonal commodities around the year.
Continue..
9


       Easy availability of finance

        - Based on hedged positions commodity market players (farmers, processors,
        manufacturers, exporters) may get easy financing from the banks.

       Risk Management

        - Growers  Short Hedge on upcoming produce

        - Traders  Short Hedge on stored quantity

        - Manufacturers  Long Hedge on input, Short Hedge on finished products

       Price Discovery

        - Future prices can be used as indicative prices for negotiating the export prices and
        also upcountry sales.
Practices at National Commodity Exchange
10

          Particulars        MCX      NCDEX
     Contract Size
     Benchmark market
     Operational Cost
     Transaction Cost
     Channel Trade
     Transparency

     Channel Financial
     Integrity

     Lead Transaction Cost
     Physical Delivery
11
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Future

  • 2. Future Trading and Sugar 2 The future trading in commodities is allowed in accordance with the provisions of the Forward Contracts (Regulation) Act, 1952. In April 2001, the Government of India's Cabinet Committee on Economic Affairs (CCEA) and the Ministry of Food permitted futures trading in white sugar to stabilize the market and safeguard the interest of farmers, stockists and exporters.
  • 3. Two Major Commodities Exchange in India 3 MCX ( Multi Commodity Exchange) NCDEX ( National Commodities & Derivative Exchange)
  • 4. Commodities Traded on the exchanges 4 Agri Products Pepper, Sugar, Chilli, Turmeric Precious Metals Gold, Silver, Platinum Base Metals Copper, Lead, Zinc, Aluminum Energy Crude Oil, Natural gas
  • 5. What are Commodity futures? 5 A financial contract; The underlying commodity is bought and sold at the future date; A tool used by Investors, Hedgers, Arbitrageurs, Day Traders.
  • 6. Why future trading in Commodities? 6 Portfolio diversification and risk management. Additional investment opportunity Low cost business No transportation, storage, insurance, security charges. Low margins high leverage Intrinsic value of the commodity Domain knowledge of industry. Hedging/Arbitrage
  • 7. Benefits of Future Trading 7 Price discovery for commodity players - A farmer can plan his crop by looking at prices prevailing in the future market. Accordingly, a farmer can plan his plantation and put his effort in the right direction.
  • 8. 8 Hedging against price risk - A farmers can sell in future to ensure remunerative prices - A processor/ manufacturing firm can buy in futures to hedge against volatile raw material cost - An exporter can commit to a price to his foreign clients - A stockist can hedge his carrying risk to ensure smooth prices of the seasonal commodities around the year.
  • 9. Continue.. 9 Easy availability of finance - Based on hedged positions commodity market players (farmers, processors, manufacturers, exporters) may get easy financing from the banks. Risk Management - Growers Short Hedge on upcoming produce - Traders Short Hedge on stored quantity - Manufacturers Long Hedge on input, Short Hedge on finished products Price Discovery - Future prices can be used as indicative prices for negotiating the export prices and also upcountry sales.
  • 10. Practices at National Commodity Exchange 10 Particulars MCX NCDEX Contract Size Benchmark market Operational Cost Transaction Cost Channel Trade Transparency Channel Financial Integrity Lead Transaction Cost Physical Delivery
  • 11. 11