Agricultural commodities likely to witness higher price volatility

Agricultural commodities likely to witness higher price volatility
The Financial Express, July 18, 2009, Page 17

Agri-commodities are expected to witness more price volatility following the delayed monsoon affecting kharif prospects as well as rabi crops this season, a top economist said. There will be more price volatility in agri-commodities as uncertainty is going to increase not only for kharif but also rabi crops due to delayed monsoon, stated Mr Madan Sabnavis National Commodity & Derivatives Exchange (NCDEX) chief economist. Things won't be as bad as expected if the monsoon revises, but there is likely to be a distortion in terms of production numbers of individual agri-products. The six-week delay in monsoon may force farmers to switch over to crops which require less rain, Mr Sabnavis added. The overall agri-production may not be affected significantly but there could be a problem in procurement this season.

It is also expected that the harvest chain would get affected. Due to the six-week delay in sowing, harvest will take place only in November instead of October this year. Therefore, sowing of rabi crop will also be delayed as farmers switch to rabi crops after harvest, he added. The delay in monsoon may impact production of pulses, oilseeds, rice, groundnut and soyabean production. Meanwhile, NCDEX has drawn up expansion plans, which includes penetration in the southern market and launch of several agri-and-non-agri contracts in the near future. Most of our business is coming from west, north and central parts of the country. South has not been tapped fully. We are approaching our existing members to open offices in the south, stated Mr Vijay Kumar NCDEX's chief business officer. We need to get a proprietary desk in the south and then figure out how to get more participants, Mr Kumar added. NCDEX is also in advanced stages of finalising the launch of new futures contracts in agri as well as non-agri sectors. Presently, traders are constrained by stock and hedge limits. If these limits are enhanced then volumes will go up, Mr Kumar further added.