Tag: commodity

Indian Agri Market Snapshot_Week Ended_April 02,2016

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Indian Agri Market Snapshot:

Financial year and month end March saw the markets were steady and stable on the front of pricing and news outflows. Few physical markets were closed. Volatility was observed during the month, with an expectation of crop failing, unseasonal rain and stockiest demands. However, slight pickup in export demand, summer season and festive demand has push the prices of the few commodities higher while in some of the commodities profit bookings from the higher levels has also been seen.

Meanwhile, we believe the upcoming monsoon updates, crop outcomes and export demand will drive the market trends for specific commodities.

TOP NEWS

  • According to Senior Official from Meteorological Department – Onset of monsoon rains over India will likely to impact owing to El-Nino. However, according to present forecast by various international weather agencies – El Nino is declining and is expected to be neutral by May end. While we believe if El-Nino diminishes by may end it may impact onset of monsoon in India which starts in early phase of June.
  • IMD (Indian Meteorological Department) is likely to issue its first 2016 monsoon forecast in 3rd week of April, which may be normal as per various parameters available as of now.
  • According to Weather Department – Indian will have another hot period of summer this year, above the normal temperature historically. IMD says there is high probability of 76% maximum temperatures in the core heat wave zone during the year.

SOYBEAN

Soybean prices has seen volatility during the week but ended on the higher levels of 4119. Prices remain firm in the second half of the March on back of lower planting data outcome from USDA, firm global markets, and strong demand from stockiest in domestic market. Prices rose from the levels of 3800 to the levels of 4100 in the time span of just 15 – 20 working days.

USDA has projected US 2016 soybean planting lower at 82.2 million acres slightly below from the previous 82.7 million acres estimated planting in 2015. While on contrary, soybean stocks stored on farms are estimated at 728 million bushels, up 19% on yearly basis and off farm stocks at 803 million bushels up 12% from last year same month march.

CHANA

Market during the week remained firm, as strong demand from local traders and restricted arrivals. According to domestic trader- Rajasthan arrival of Chana may increase in coming days due to start of new financial year and prevailing higher prices. On physical market front – Mandis – Chana is hovering in the range of Rs 4200 – 4400 per quintal with the arrival of 15,000 – 20,000 bags per day.  In coming weeks, prices on the higher levels could see some pressure on back of arrival pressure in major mandis.

According to USDA outcome report – US farmers are planning to plant in large area of Chickpeas due to strong prices and demand, as compared to last year. As per expectations, planting area for small chickpeas to increase by 15% to 83,000 acres and for large chickpeas is expected to grow by 20%.

TOP NEWS

  1. On Buffer Stock of pulses – HAFED will procure Chana on behalf of NAFED in Haryana. Haryana gram production estimate is around 1.05 lk tonnes and arrivals are expected from Mid April. If prices in physical market decreases or comes around MSP, government intervention to cernment would pay Rs 75 per quintal over and above MSP.
  2. On Carry out stocks – Canadian Chickpeas are expected to fall from 125,000 MT in 2014-15 to 50,000 MT in 2015-16, mainly due to strong exports demand and lower production.

MCX COTTON

Cotton prices are moving high, rose to over one- month high in late morning trades in Friday, on back of falling output estimates for 2015-16. Fundamentals are bit supportive for uptrend as intensifying concerns over lower production of cotton amid tightening arrivals at major trading centers. Recent outcome of CIA (Cotton Association of India) has further revised its production estimates downwardly to 34.5 million bales as estimated before to 35.3 million bales. Cotton arrivals in current season have declined by more than 11% on year.

Market Movement

All India arrivals reported so far in current season stood at 24.84 million bales as on March 22, according to CCI (Cotton Corporation of India). Meanwhile, US plantation for cotton may stand at 9.562 million acres, up 11.4% as compared to last year. Upland area is estimated at 9.347 million acres, up11% and prima plantings forecast at 215,000 acres up 35.6% from 159,000 acre last year.

SUGARM

Sugar prices across the globe have skyrocketed, prices are trading firmly higher globally on back of lower stocks, summer demand and higher exports. Sugar price on exchange has gains nearly Rs 400 during March and further rise is imminent with pick up in demand for the hot summer season and export demand. Local traders say prices to remain firm in coming months. On retails pricing front prices have risen to Rs 40/kg from the levels of Rs 35/kg in the time span of just one month.

Sugar Consumption during summers remain pretty strong because of increased demand from confectioners, ice cream and aerated water manufacturers. Year of 2015 remains strong for sugar manufacturers on back of strong export demand, strong local demand, and lower stocks. On capital markets front sugar stocks surged in range of 50 – 80% in the time span of just 6 – 9 months.

Market Movement

Sugar market sentiment has changed drastically in last one year on back of lower stocks wherein, estimated export of nearly 1.7 million ton will bring down the carry forward stocks to below 8 million ton from 9 million tons a year before – according to ISMA official said.

According to domestic traders – Since price rise in global markets are showing bullish sentiment, boosting local stockiest confidence to stock the commodity on expectation of further increase in prices. If prices sees some pressure from higher levels stockiest or traders would support the prices from further fall on robust demand domestically and internationally.

Prices have seen sharp upward movement from the levels of Rs 3250 to the levels of Rs 3680 in the time span of just one month March.

 

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Indian Agri Market Snapshot_Week Ended_March 11 2016

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Indian Agri Market Snapshot :

Domestic agri markets likely to trade volatile on back of new arrivals of rabi crops, recent changes in the climates and outcomes of the arrivals data. Demand for domestic and export markets likely to pick up as new crop arrivals will start rising in coming days in mandis. Recent weather report outcome shows prospects of rains in areas like North, North West & Central India are high which could adversely impact the rabi crop and the prices of the commodities also.

Top News

Recent developments of adverse weather impact, positive outcome from the Union budget, new arrivals in rabi crop and pick up in domestic demand on back of summer festivals – has lift the prices of various commodities from the lower levels strongly.

Cumin Seed or JEERA

Prices of Cumin seed & Coriander has shown an uptrend in Agri markets during the week ended on 11th March on back of adverse weather caused by Western disturbance. India is major producer and exporter of spices. Export data from Spice Board of India shows increase of 9% during 2014-15 to 8,93,920 tons as compared to 8,17,250 tons a year earlier.

Jeera prices on NCDEX March contract may see prices upwards on back of unseasonal rain, which adversely affected the report of crop damage in some regions of Gujarat (including Saurashtra) and Rajasthan. During last week in spot market moderate demand has seen from the stockiest which has supported the prices on the lower levels. Moreover, the production in Syria (second largest producer of cumin seed) and Turkey (third largest producer) is expected to be low by nearly 15% due to geo-political tensions which would led to positive sentiments in Jeera Market domestically in coming months on prices front.

Daily fresh arrival of 27,000 bags has been reported in Unjha market. However, overall output is expected to be higher than previous year, which would cap the prices of Jeera on higher levels.

Coriander Seeds

During last week prices of coriander has seen uptrend on back of crop damage report and fresh demand in the sport market. Buyers from different mandis like Kota, Ramganj and Gondal has seen active due to good quality new supply coming to the markets. Fresh arrivals in Kota- Rajasthan and Gondal – Gujarat has seen total arrivals of 920 and 376 quintals respectively.

Coriander prices to remain positive in coming weeks due to limited supply of new crop would attract good buyers; reports of unseasonal rainfalls, and demand from end-user industries of quality produce may support the prices on the lower sides.

Prices of Coriander have also seen uptrend in last week on back of unseasonal rains, which would have damaged some of the crop.

Key Points to Watch Out in Coming Week for Price Variations:

  • Unseasonal Rain – Effects and Crop Damage outcomes.
  • Arrivals of fresh crops in Mandis.
  • Export demand in International Markets.

 

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Invest instead of spending this festive season !

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The festival season is upon us again, and once again we are readying to usher in Goddess Laxmi into our home with Diwali round the bend. While this is the season to be jolly and bring in gifts and goodies for everyone, we are here with something that may well be a gift for you. If you are financially savvy and investing rather than spending is on your mind this Diwali, this blog post is just for you! We are here to tell you which trends are being buoyed by the festive cheer and will also hold you in good stead, over the medium to long term.

  • India is in a sweet spot

First up, let us take a look at the macroeconomic situation. There is little doubt about the fact that there is an undercurrent of buoyancy at the moment in the Indian bourses. This has largely to do with RBI swooping in with a larger than expected rate cut and the promise of more that is finanlly giving the confidence of an economic revival that has been expeted for so long. This economic revival deluded the markets in the first half of the year, with RBI holding onto the rate cuts  and the slowdown in order flows for most of the corporates in the first half of the year.

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Things have however taken a turn for the better in the second half and looking forward we can indeed say that the investor confidence is at its peak. This is despite the fact that the global economic situation is far from perfect. India however remains largely insulated thanks to the fact that there are strong fundamentals backing the markets. India is in fact in a sweet spot as compared to the rest of the emerging economies thanks to the cooling oil prices and commodity prices on the one hand and higher indirect tax revenue that will help the Indian Government meet its fiscal deficit target this year.

  • The consumption theme

In this situation, the one theme that is standing out at this moment is that of “consumption”. The numbers too speak volumes. The BSE Consumer Durable Index  has given nearly 25 % returns from October 2014 to now, while the BSE FMCG Index has delivered returns of nearly 5%. Both these indices have outperformed the BSE Sensex that has given returns of 3.24% in the same time period.

And that is not all as far as statistical evidence is concerned. India is largely a consuming economy with a $1500 per capita income that comes on the base of an economy that is currently valued $1.8 trillion economy. With the per capita income expcted to double before the tturn of the decade, there is expected to be a significant rise in the disposable income of the population at large.

Over the festive season and indeed over the long term, the one segment to look upon as attractive is the “consumer discretionary” segment. Companies in this segment are the big retailers, service oriented companies, consumer durable firms and clothing companies. With interest rates coming down now, the basic cost of import is coming down for most of these companies. This, coupled with lower fuel prices has boosted the confidence of buyers. Investors should however look at the “consumer discretionary” segment to come into its full potential over the next two to three years. Our advice is to study the sector up close from now onwards and increase your stakes gradually rather then going the whole hog right away.

  • Betting on the financial sector

The other sector that we are bullish on is banking. The long and short of it is- when consumption is the dominating theme in the Indian bourses, can finances be far behind? Despite the fact that Indian banks are still bogged down by asset quality woes, there is a definite positive turn in the banking sector as of now. The most obvious reason is the fall in interest rates, the transmission of which start reflecting sooner than later. Though the credit offtake still remains unsatisfactory growing below 10% over the past year or so, this trend may finally change, with the hefty rate cuts.

One can safely say at this point that the large private banks are going to outperform their public sector peers going ahead, as they have their asset quality under control and are being buoyed by the talks of an imprending rise in their FDI limits. The good news is that this time round it is not just the large banks but the smaller wholesale banks that will benefit quite significantly from an interest rate cut.

To conclude therefore, we would like to say that going ahead in the next six months, Indian bourses are looking very attractive and raring to go. With interest rates on the imminent downward jouney, the capex plans are being firmed up by Indian companies and this in turn is giving a boost to the consumption theme that has been India’s dominating trend over the last few years. Therefore, wait no longer! This Diwali season, gear up to gain from the Indian markets. We have already given you the themes that are dominating the markets this festive season. Any other help you need while investing, we at Beeline are more than happy to step in!

 

 

FAQs_Commodity

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♦ What is a commodity?

 A commodity is a product having commercial value that can be produced, bought, sold, and consumed.

♦ What is a Derivative contract & what is Commodity future?

 A derivative contract is an enforceable agreement whose value is derived from the value of an underlying asset; the underlying asset can be a commodity, precious metal, currency, bond, stock, or, indices of commodities, stocks etc. Four most common examples of derivative instruments are forwards, futures, options and swaps/spreads.Commodity future is a contract to buy or sell specific commodity, of a specific quality, at a specific price, for a specific future date on the exchange.

♦ What is a forward contract?

 A forward contract is a legally enforceable agreement for delivery of goods or the underlying asset on a specific date in future at a price agreed on the date of contract. Under Forward Contracts (Regulation) Act, 1952, all the contracts for delivery of goods, which are settled by payment of money difference or where delivery and payment is made after a period of 11 days, are forward contracts.

♦ What is a futures contract?

 Futures Contract is a type of forward contract. Futures are exchange traded contracts to sell or buy standardized financial instruments or physical commodities for delivery on a specified future date at an agreed price. Futures contracts are used generally for protecting against rich of adverse price fluctuation i.e. hedging.

♦ How are futures prices determined?

 Futures prices evolve from the interaction of bids and offers emanating from all over the country which converge in the trading floor or the trading engine. The bid and offer prices are based on the expectations of prices on the maturity date.

♦ What is long position?

 In simple terms, long position is a net bought position and its opposite term is Short position.

♦ What is the difference between spot market and futures market?

 In a spot market, commodities are physically bought or sold usually on a negotiable basis resulting in delivery. While in the futures markets, commodities can be bought or sold irrespective of the physical possession of the underlying commodity. The futures market trades in standardized contractual agreements of the underlying asset with specific quality, quantity, and mode of delivery whose settlement is guaranteed by regulated commodity exchanges.

♦ What is a Commodity Exchange?

 As in capital markets, a commodity exchange is an association or a company or any other body corporate that is organizing futures trading in commodities and is registered with FMC (Forward Market Commission). Two major national level commodities exchanges are Multi Commodities Exchange of India (MCX), National Commodities and Derivatives Exchange of India (NCDEX).

♦ Who regulates the commodity exchanges in India?

 Commodity Market in India is regulated by Forward Market Commission (FMC) under the guidance of the Ministry of Consumer Affairs, Food, & Public Distribution.

♦ What are the benefits of futures trading in commodities?

 The biggest advantage of trading in commodity futures is price risk management and price discovery. Farmers can protect themselves against undesirable price movements and decide upon cropping pattern. The merchandisers avoid price risk. Processors keep control on raw material cost and decreasing inventory values. International traders also can lock in their prices.

♦ What is hedging?

 Hedging means taking a position in the futures or options market that is opposite to a position in the physical market. It reduces or limits risks associated with unpredictable changes in price. The objective behind this mechanism is to offset a loss in one market with a gain in another.

♦ What is arbitrage in commodity markets?

 Arbitrage is making purchases and sales simultaneously in two different markets to profit from the price differences prevailing in those markets. The factors driving arbitrage are the real or perceived differences in the equilibrium price as determined by supply and demand at various locations.

♦ Unlike equities where rate is per share basis, does the commodities market have different rate units for different commodities?

 Commodities have predefined lot sizes (set by the respective exchanges as per existing regulation) where current price of a particular commodity, for selected expiry, is shown in contract information available & rate units differ for different commodities. The standard unit based on which the price of the contract is quoted for trading is called quotation or base value. E.g. for gold contract, the quotation or base value is 10 grams while it is 1 kg in case of silver on MCX.

♦ What is a lot Size? Do the trading & delivery lot sizes differ from each other?

 It is the quantity of a commodity specified in the contract as tradable units. The lot size is different for each commodity. The details About lot sizes / delivery lot can be obtained from the respective exchanges’ website. Each contract has a lot size and a delivery size, which are not the same; in the case of gold, the lot size on the NCDEX is 100 gm while the delivery size is 1000 gm. If a person wants to enter into a delivery settlement for gold, he will have to enter into a minimum of 10 contracts or multiples thereof. Market participants are required to negotiate only the quantity and price of the contract, as all other parameters are predetermined by the exchange.

♦ What is the meaning of Basis?

 Basis is the difference between the spot price of an asset and the futures price of the same asset underlying. The spot price is the ready price prevailing in the physical commodity market while the futures price is the price of any specific contract that is prevailing in the exchanges where it is traded.

♦ What is meant by basis risk?

 Generally, the spot price of a commodity and future price of the same underlying commodity do not change by the same amount during the life of the futures contract. This uncertainty in the variation of basis is known as basis risk.

♦ What is initial margin?

 It is the minimum percentage of the contract value required to be deposited by the members/clients to the exchange before initiating any new buy or sell position. This must be maintained throughout the time their position is open and is returnable at delivery, exercise, expiry or closing out.

♦ What do you mean by delivery period margin?

 It is the extra margin imposed by the exchange on the contracts when it enters the concluding phase i.e. it starts with tender period and goes up to delivery/settlement of trade. This amount is applicable on both the outstanding buy and sell positions.

♦ What is Mark-to-market (MTM)?

 Mark-to-market margins (MTM or M2M) are payable based on closing prices at the end of each trading day. These margins will be paid by the buyer if the price declines and by the seller if the price rises. This margin is worked out on difference between the closing/clearing rate and the rate of the contract (if it is entered into on that day) or the previous day’s clearing rate. The Exchange collects these margins from buyers if the prices decline and pays to the sellers and vice versa.

♦ What is due date rate?

 It is the rate at which the contract is settled on the expiry date. Usually it is the average of the spot prices of the last few trading days (as specified by the exchange) before the contract maturity.

♦ What is Cash Settlement?

 It is a process of settling a futures contract by payment of money difference rather than by delivering the physical commodity or instrument representing such physical commodity (like, warehouse receipt). In India, most of the future trades are cash settled.

♦ What is meant by calendar spread?

 A calendar spread means taking opposite positions in futures contract of the same commodity with different expiry dates. It is also known as an intra-commodity spread.

♦ Are there any circuit breakers in commodities like in equity markets?

 Yes, like equity markets, commodity market has circuit breakers. Exchanges have circuit filters in place. The filters vary from commodity to commodity but the maximum individual commodity circuit filter is 6 per cent. The price of any commodity that fluctuates either way beyond its set price limit will fall in circuit breaker category.

♦ What kinds of risks do participants face in derivatives markets?

 A.Credit risk:Credit risk on account of default by counter party: This is very low or almost zeros because the Exchange takes on the responsibility for the performance of contracts

B.Market risk:Market risk is the risk of loss on account of adverse movement of price.

C.Liquidity risk:Liquidity risks is the risk that unwinding of transactions may be difficult, if the market is illiquid

D.Legal risk:Legal risk is that legal objections might be raised; regulatory framework might disallow some activities.

E.Operational:Operational risk is the risk arising out of some operational difficulties, like, failure of electricity, due to which it becomes difficult to operate in the market.

♦ Can I take delivery of the commodity? If yes, how can I do the same?

 A settlement takes place either through squaring off your position or by cash settlement or physical delivery. Squaring off is taking a opposite position to the initial stance, which means in the case of an original buy contract an investor would have to take a sell contract.
An investor who intends to give or take delivery would have to inform his broker of the same prior to the start of delivery period. In case of delivery, a warehouse receipt is provided. Delivery is at the option of the seller; a buyer can take delivery only in case of a willing seller. All unmatched/rejected/excess positions are cash settled; all open positions for which no delivery information is submitted are also cash settled. Under cash settlement, the difference between the contract price and settlement price is to be paid or received.  In online commodity trading, client can not go for delivery & all positions are cash settled.

♦ What are the costs involved in trading of commodities?

 While trading in commodities, with any registered broker, client has to pay certain charges (apart from margin requirements for trading) which are as follows:

  1. Brokerage
  2. Service  Tax
  3. Exchange Transaction Charges
  4. Educational Cess

 

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