Thursday, March 29, 2018

Are agriculture commodities exchanges promoting speculators ?

Agriculture commodities exchanges were established to give an opportunity to farmers to do the forward contract of his crop production. Agriculture commodities exchanges are the useful tool for price discovery. But these commodities exchanges have become the platform for the speculators and they wipe out the whole profit of the investors. Conversion of the forward contract in delivery is a major challenge. Actual investors and farmers face the loss in case of heavy demand and tight supply. 

Generally, speculators enter in the selected commodities which are grown in a limited geographical area. They collect the all the market information through their network and started to manipulate the demand and supply. When all the fundamentals are positive, and investors & farmers expect the good return. These speculators wipe out the profit with pre-planned price movement. Generally, speculators play against the general fundamental factors.

When speculators find there is the short delivery of commodity they sell out their stock and create a position of artificial saturation. This situation put pressure on prices of commodities and prices of commodities doesn’t go up and speculators pick the new arrival of the commodity from the market. After picking the commodities he withdraws his stock from market and prices start to rise with multiple speed. He earns profit from his stock.

It is not possible to manipulate the big agriculture commodities grown in the wide area. Because it not possible to control all stockholders in the wide area. Like Wheat and Rice. Prices of wheat and rice don’t go up spontaneously because these are grown in the large area. But in the case of turmeric, Cumin or Guar we find 6-7 lower and upper circuits in one month. Investors lose more small commodities.

Govt must take strict action against these movements. Terms of contracts should be revised further. There must be mandatory delivery and pick up. Except the farmers, there must be mandatory delivery for sell contract and mandatory pick up for the buy contracts. If someone declares himself/herself as farmers then his/her land record details must be mandatory. Size of contract should be matched with delivery. Any sudden buy and sell in commodity exchange must be checked properly and there must be the proper investigation that from where the stock is coming, or stock is going. 

Some irregularities were also noticed at warehouse level where the inferior quality material is stocked at the price of superior quality. Issues were raised with warehouse service provider attached to Exchanges. Last time it was noted with black pepper and coriander. Govt must these issues seriously. Price discovery has left behind not commodities exchanges are used for price manipulations. 

Trading must be banned for the small commodities and regional commodities. So that no one can manipulate the prices. 30% Participants must be farmers so that actual profit should be shared with farmers and in the case of price fall farmers can give delivery to exchanges. Entry of speculators in commodity exchange are harmful to farmers and traders both.

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