MCX, the country’s largest commodity exchange, has launched Cottonseed Wash Oil futures, which will offer a robust price risk management solutions for the cottonseed oil industry.

The new futures contract is designed to provide transparency, efficient price discovery and a hedging mechanism for various stakeholders, including cottonseed crushers, edible oil refineries, wholesalers and traders.

Each contract will have a trading unit of 5 tonnes, with a base value quoted in Rs per 10 kg, ex-tank Kadi, Gujarat. The margin requirement for entering into the contract is about 12 per cent.

Cash settlement

Contracts will be cash-settled, providing greater convenience and efficient opportunity for risk management for participants across the supply chain.

The launch of new futures contract comes at a time when managing price risk has become essential for long-term business sustainability. The commodity market has become increasingly interconnected with international factors such as global supply chains, energy prices and competing vegetable oils such as soyabean and palm oil.

The contract will help Indian businesses a critical tool to navigate the complexities while remaining competitive. It will provide the protection against fluctuating raw material prices and protect their margins.

The cottonseed oil industry, particularly the crushers, often grapples with significant price volatility due to fluctuating market dynamics, raw material availability and unpredictable international trends.

With the ability to lock in future prices, cottonseed crushers can safeguard their margins and stabilise their revenue streams. This is especially important as they manage significant quantities of raw cotton seed wash oil, a key input in the production of edible oils and related products. The contract allows crushers to maintain more predictable costs, mitigating the impact of sudden market changes, which can otherwise erode profitability.

India is one of the largest producers and consumers of cottonseed oil, with the country consuming about 1.34 million tonnes of cotton oil in FY24. As cottonseed wash oil is widely used in food production, bakery items and as frying oil, the MCX futures contract will have a far-reaching impact in stabilising input costs for manufacturers and processors.

Beyond food products, the cottonseed oil finds use in sectors such as animal feed, textiles and insecticides. This further underscores the significance of managing price risks through commodity futures in a market with broad economic implications.

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