Turnover in agri commodity futures in both the key commodity exchanges has fallen sharply in the current month. The Forward Market Commission's initiatives to curb volatility in futures price seem to have made traders wary.
Month-to-date overall turnover in NCDEX has dropped by 28 per cent over the same period in March. MCX, which has a good share of volumes coming from bullion futures, managed to fare better with a 12 per cent fall in volumes.
After announcing suspension of trading in futures contract of the guar complex in March, the FMC also recently initiated investigation into futures contract of pepper, mentha oil, cardamom, potato, mustard seed, soya bean and chana.
Uncertainty and loss made on open contracts in guar and guar gum futures have made traders sceptical about other commodities too, and has dissuaded them from initiating fresh buys.
Also, the increase in initial margin in some commodities such as chana and potato and the levy of additional and special margin on the long side in futures contract of potato, pepper, and so on, appear to have made traders wary of taking fresh positions.
The cut in open position limits in futures contracts of soya bean, mustard seed, chana and refined soya oil, which had essentially lowered the maximum holding in a contract by a broker member and his client, could have also have depressed volumes.
All major agri commodities have seen significant drop in volumes. Chana, for instance, has seen turnover in its futures contract in NCDEX drop by 53 per cent in April over the last month. The number of traded contracts too reduced by half to 3.5 lakh.
Pepper futures contract saw an even sharper fall of 62 per cent in turnover. Potato futures has seen a 66 per cent drop and Mustard seed futures a 34 per cent turnover drop. Soya bean has recorded the least correction with a 12 per cent drop in turnover.
Despite the regulator's initiatives, the desired results have not ensued. Prices of farm commodities in the futures market have continued to increase.
For instance, soya bean futures is trading around Rs 3,600/quintal, up 17 per cent from the closing in March. The futures contract of chana, mustard seed and potato too are trading above their last month's price. Pepper futures, however, is trading marginally below its March closing.