By Jaspal Singh Siddu
Trading in commodity futures – basically an arena of stock market players – may have started with economic objectives such as price discovery and price risk management, but, of late, has become an important part of investment portfolio promising quick and attractive returns.

And, the commodity derivatives trade's value in relation to GDP has been galloping to touch 66 per cent during 2005-06 from mere 5.81 per cent in 2003-04. Now, it has neared 75 per cent of GDP with growth registering 300 to 400 per cent during past a couple of years.

In fact, stock marketing and futures trading are the main instruments of speculation in the capitalist economy in which the capital is invested and reinvested with a sole purpose of making a profit.

Thus the capital grows, multiplies and gets concentrated in a few hands. In such an economic set-up, the futures trading wields a tight grip over the real economy, influences the movement of spot prices. But, it also happens that the futures trade starts moving in an absurdly divergent manner, showing no connection with the spot market.

Thus, it becomes sheer gambling for a profit. This was particularly happened in the case of agricultural commodities- much illustrative example of chilies last year. Also, such trend lent a high volatility to the prices of agricultural commodities.

It happened in the case of prices of wheat, pulses and food items in past two years after the government allowed futures trading in essential commodities too in 2002. The government took that policy initiative following a pressure from WTO which was aimed at integrating (or opening up of) the Indian agriculture market with that of the developed world.

Futures and price rise
The abrupt rise in the futures trading of agricultural commodities synchronized with spiraling of farm produce prices. Rather, it mounted up volume of goods contracted and flow of capital in the futures trading. The world over, suggestions from the experts sputtered in commodity exchanges and among speculators:' Make profit from the Global Agricultural Boom'….. bull market in commodities sending agriculture prices through the roof…. Global agricultural boom is the safest, easiest ways to profit…'only two stocks you need to Retire Rich'.

Thus, the agricultural trade became a 'paper based derivatives trade' keeping prices of food items soaring globally. And, as a part of the price manipulation, a projection of shortage in production and supplies of wheat and other farm goods was made. It led to a worldwide hue and cry over the looming threat to food security. Consequently, some poor countries even witnessed food riots and millions made to suffer severest bout of malnutrition.

In the Indian context, base metals particularly copper, energy (crude oil, natural as) and bullion ( gold and silver) has traditionally been the biggest share-holder (70 per cent) of the commodity futures trading at MCX . And the prices of these items are primarily driven by a benchmark international trade. Till 2005, grams, guar, mentha oil and soy oil has accounted for more than 60 per cent of the futures trade in the farm products.

But with the coming up another exchange, NCDEX , in 2006, the volume of farm good traded went up abruptly. And it focused its trade on the farm produce. The UN body, UNCTAD has quoted it as the third largest exchange trading in agricultural futures in the world.

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