Low rains, demand boost prices, undo suspension goal

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Thu, Jul 24 03:17 PM

By Debiprasad Nayak & Abhishek Shanker

MUMBAI (Reuters) - Below average rainfall in major producing regions, and a spurt in demand, have combined to boost the prices of the four farm commodities India suspended from futures trading in May to reign in prices, industry officials said on Thursday.

Prices of soyoil, potato, rubber and chickpea, which were suspended from futures trading for four months in May to control soaring inflation, have risen by 6-14 percent since then. In the same period, inflation rose to 11.91 percent from 7.61 percent.

"By banning or suspending futures, prices may ease for a day or week but they again bounce back on demand-supply situation," said K.C. Bhartia, president, Pulses Importers Association of India.

India also banned futures trading in wheat, rice and two varieties of lentils in early 2007.

Futures gave an opportunity to pulses importers to hedge their risk before entering into import deals and now they don't have any such instrument, he said.

Before the suspension, chana and soyoil were among the most traded agriculture commodities on the exchanges.

Monsoon has not been conducive this year and prices of most of the commodities are bound to rise despite the suspension of futures trading, said Shailendra Kumar, head, Commodity Research Group.

Countrywide rainfall from June 1 to July 15 was 6 percent above the long period average, but rains have been 30-60 percent lower in western and southern regions of India, affecting output prospects of soybean, pulses and rubber.

Chairman of the market regulator, Forward Markets Commission, B.C. Khatua, told Reuters on Wednesday that there was no link between futures trade and price rise.

Chana prices have risen more than 6 percent to 2,500 rupees per 100 kg in the Delhi spot market since the suspension, as main kharif pulses growing region received lower rainfall. Refined soyoil prices are up more than 13 percent, to about 64,300 rupees per tonne in Indore, since the suspension.

"The rise in commodities like soyoil has been mainly due to bullish international markets and deficient rains in growing states like Maharashtra," Naresh Vijayvargia, a soyoil broker in Indore, a hub of soyoil trade in India, said.

India imports more than 40 percent of its vegetable oils requirement -- soyoil mainly from Argentina and Brazil and palm oil from Indonesia and Malaysia. Rubber prices have also risen more than 14 percent since the suspension despite higher production in the period due to a surge in oil prices and rising demand from tyremakers, said Alex Mathews, head of research, Geojit Financial Services Ltd.

"The input cost for the farmers has not come down...they can't sell their commodities at lower prices," said Commodity Research Group's Kumar.

(Additional reporting by Rajendra Jadhav and Sourav Mishra)

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