Published on March 8, 2014
Chana @ NCDEX Benchmark for the industry The Pulses Conclave 2014 - GOA
Introduction - NCDEX Owned by 14 distinguished National and Global entities NCDEX holds 87% share of quantity traded in agriculture derivatives market NCDEX has approved more than 500 warehouses PAN India with a storage capacity of 2.3 mn MT Participation of Value Chain from PAN India to discover fair price of the commodity NCDEXSPOT is providing an electronic auction platform to procure pulses by Various state Govt to ensure nutritional portion in Mid-Day Meal and other such Schemes
Trading in Physical Market - Need of Risk Management Unregulated Forward contracts and hence there was always risk of counter-party defaults Liquidity in forward contracts is limited Lack of far month forward contracts Price Inputs daily volatility and daily basis forward contracts Output Competitiveness Measurable Factors Availability Quantity Quality Seasonal Sensitivity, human consumption
Average Price Annualized Volatility 45% 41% 40% 35% 31% 30% 28% 27% 25% 25% 20% 31% 22% 21% 17% 15% 10% 5% 0% FY05 FY06 FY07 FY08 FY10 FY11 FY12 FY13 FY14
Tool for Risk Management Regulated long term forward contracts with reference price model Medium to ensure risk of counter-party defaults Contracts with healthy liquidity Availability of far month contracts for better price discovery Models to hedge buffer stocks and purchases for efficient financial planning Price Efficient Frontier Tools - NCDEX Measurable Factors Supply Ensure Supply Consistency
Risk Management Tool – NCDEX MOST liquid CHANA futures contract in the World Large no. of active clients for efficient price discovery Stringent regulatory environment, hence ensuring honoring and smooth settlements of contracts Value chain can hedge their prices against their physical trades Better price discovery in the far months
Average Open Interest and Ratio with Crop 300,000 An average Open Interest to crop ratio of 2.60% 6% 5% 200,000 4% 150,000 3% 100,000 2% 50,000 Million MT 250,000 1% 0 FY05 FY06 FY07 FY08 FY10 FY11 FY12 FY13 FY14 AD - OI 77,754 280,243 205,800 112,952 166,174 251,142 115,738 146,934 214,252 OI/Crop Ratio 1.36% 5.12% 3.67% 1.78% 2.35% 3.36% 1.41% 1.91% 2.41% 0%
Chana Performance Average Daily Quantity Traded 300,000 273,089 Metric Tonnes 250,000 200,000 143,883 150,000 152,543 127,240 139,634 113,949 100,000 50,000 0 FY08 FY10 FY11 FY12 FY13 FY14
Annual Correlation between Spot price and Futures Price of Chana Financial Year Correlation Coefficient FY05 81.33% FY06 95.35% FY07 95.21% FY08 94.62% FY09 93.58% FY10 91.73% FY11 94.74% FY12 98.47% FY13 97.11% FY14 93.29%
Annual Correlation between Spot price and Futures Price of Chana 6,000 5,000 Rs. /Quintal 4,000 3,000 2,000 1,000 0 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Spot Price Apr-09 Apr-10 Future Price Apr-11 Apr-12 Apr-13
Impact of NCDEX on Trading Ecosystem Price Transparency Efficient Risk Management tool for Value Chain Price Dissemination Infrastructure Development Mandi modernization E–Trading – FCI, STC, SFAC Grading & Standardization
Looking Ahead New Futures Contract on NCDEX TUR URAD Yellow Peas Direct Delivery Exchange for Physical Hedge Policy & Banks Improved Warehousing
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Indian share of Chana across World 25 90% 80% Production ‘million MT 20 70% 8.88 60% 15 50% 4.24 40% 10 30% 20% 5 10% 0 0% FY02 FY03 FY04 FY05 FY06 World Source: FAO Stat FY07 FY08 India FY09 % share FY10 FY11 FY12 FY13
Introduction - Chana India has produced almost 71% of Chana produced in world - last decade We have recorded more than 100% increase in production from 4.24 mn MT in FY03 to 8.80 mn MT FY13 Domestic production is growing at CAGR rate of 7.67% whereas imports at CAGR rate of 29.91%. Chana is the most grown, consumed and processed pulse in India and holds about 44% share in total pulses produced Export of pulses, except for Kabuli chana, was initially prohibited for six months in 2006. It was then extended from time-to-time up to March 31, 2014.
Major milestones Recorded highest value of 2893 Crores as on 23rd September 2011 Recorded highest quantity traded of 1.18 mn MT as on 22nd March 2006 which is 18% of the total crop produced that year. Recorded highest Open Interest of more than 5 Lakh MT on 30th December 2005 which is 9% of the total crop in FY06. Recorded a maximum participation of 3500 active clients in a single trading day through a maximum of 500 members
New Initiatives Exchange For Physical (EFP)
Exchange for Physical Electronic form of forward contracts EFP allows smooth exit with reference price model with assured delivery from preferred supplier Corporate Policy to lock in relative price risk on NCDEX to eliminate defaults. Merchandisers to transact relative price contracts (+/- NCDEX Futures) with preferred suppliers Banks to monitor/review hedging for loans
Advantages of EFP Enables Futures risk management using NCDEX Delivery between the specific firms at mutually agreed quality, location and premiums. Prevents slippage loss; if each party closes position independently
EFP process flow Two Parties negotiate physical deal: price, quantity, location etc Futures Positions Exchanged/Closed (Against Actual) Physical delivery 20 The Parties hedge on NCDEX futures Parties approach the Exchange and obtain EFP approval
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