Ban the futures trading in wheat in India. Play in the futures global market in wheat. This may read confusing. But this is exactly what the Indian government is doing these days.
The Manmohan Singh government banned futures trading in wheat in the domestic market last month. The ban came in the wake of rising inflation that has become a major political issue for the government.
Wheat futures may be banned in domestic market. But the government is all set to take up trading in wheat futures in the global market.
The government has set up a committee headed by Cabinet Secretary B K Chaturvedi to study whether it can get into futures in wheat in the international market.
A senior official in the Ministry of Agriculture said the need to get into wheat futures in global market has been necessitated by India's need to import wheat grain.
"We need to play in the futures market globally if we need to import wheat at reasonable prices," the official told Commodity Online.
He said the committee may take hedging exposure in options or futures in wheat at the Chicago Board of Trade (CBoT), the leading global commodity futures exchange. CBoT is the world's largest commodity exchange for wheat.
Government feels that successful hedging of wheat at CBoT will help it import wheat at cheaper rates. This will also help the government to control volatility in wheat prices in the domestic market.
How does the government decision to play in the futures market in wheat work?
Suppose, if the price of wheat is Rs 10 per kg, and is expected to increase to Rs 15 per kg in the future, then the government enters into a two-month futures contract to take delivery of a certain amount at a price lower than Rs 15.
In fact, a similar committee was set up by the government last year also to study the need for futures in wheat in the global market.
As per the committee recommendations, the government had entered into global futures contracts in wheat but chose not to take delivery.
Estimate of wheat output in India is changing day-by-day, from 74 million tonnes to a 71 million tonnes. But the consensus is that the output will fall short of the targeted of 75.5 million tonnes.
Concerned over high prices, the Centre has already initiated a series of measures. Banning wheat exports, releasing intervention stocks and asking large corporates not to purchase from the frontline states of Punjab and Haryana are some of the steps taken by the Centre to tackle wheat prices.
This season harvest is likely to commence much earlier than the Baisakhi day (April 14) because of early planting.
Another issue which will decide the wheat prices is how much will Food Corporation of India (FCI) be able to procure this season. The target is set at about 15 million tonnes. Market analysts expect that the government would soon announce a bonus of Rs 50 per quintal.
