Role of commodity exchanges

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Role of commodity exchanges

• Efficient price discovery
• Liquid contracts
• Price dissemination to ensure that farmers can
  view them
• Provision of delivery platform
• Warehousing logistics
• Quality assurance
• Developing grades and standards

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Farmers Interface Pre-harvest
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Pre-harvest Concerns

• Choice of crop
• Cobweb syndrome
• Influence of MSP
• Grades and standards
• Price risk
• Volumetric risk
• Yield dependent on monsoons
• Credit availability limited
• Crop failure
• Default on crop loans

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Arathiya and the exchanges

• Traditional integrated role provided by the
  arathiya
• Price
• Buyback
• Insurance
• Liquidity
• Flexible turn around time

..Need to replicate an efficient system bringing
in exchanges, insurance companies, banks and
aggregators
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Moving to an integrated approach
Price hedging NCDEX
Farmers
Insurance
Aggregator
Bank Finance
Buffering yourself from natures vicissitudes
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Architecture for Price Discovery
620 members
Spot Price polling
6616 terminals
75,000 daily trades
490 centres
168,000 daily orders
37 commodities
80 agri volume
325 Awareness Programmes
Monthly Deliveries of 40-45,000 t
120 delivery centres
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Price dissemination Choose your crop
Radio
TV Channels
E-chaupals N-logue
News agencies
PCOs
Newspapers journals
Kisan call centres
AGMARKNET
Bank branches
IFFCO, HAFED Warehouses
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Subjectivity in grading
Graders?
Samples
g-good, fg-fully good, f-fine, sf-super fine,
c-choice or extra super fine
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Grading and Standards Improve your prospects
IARI Grading in rice, wheat maize
Quality standards
CIRCOT Grading in cotton
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Farmers interface Post-harvest
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Post-harvest conundrums

• When to sell the commodity?
• Spot market or futures market
• Where to sell?
• The closest mandi or the one offering best price?
• If selling in futures market, then
• How to tide over financial requirements in
  interim period?
• Warehousing facilities
• How to access the commodity futures market?

..How do we improve his holding power?
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Post Harvest Scenario
Farmer sees NCDEX spot and futures prices
Sells futures On NCDEX
Approaches mandi of choice
Lodges goods in NCDEX/NCMSL warehouse
90 WAREHOUSES
Goods assayed by approved assayers
Working with all leading assayers
Warehouse Receipt in electronic form
NCMSL arranges credit
Bank finance against WR
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• About NCDEX

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NCDEX Current shareholders
NABARD 15
CRISIL 12
NSE 15
IFFCO 12
ICICI Bank 15
PNB 8
LIC 15
Canara Bank 8
..All shareholders bring along their expertise
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Product Calendar
Apr-Dec 2004
Jan May 2005
In pipeline
Dec 2003
Gold, Silver, Crude Palm oil, RBD Palmolein,
Cotton, Mustard seed, Mustard oil Soybean,
Refined soy oil


Guar seed, Jute sacking, Chana, Rubber, Pepper,
Wheat, Castor seed, Guar gum, Raw jute, Urad,
Yellow peas, Sugar, Turmeric, Soymeal
Gur, Rice, Maize, Raw silk, Cocoon, Jeera,
Chilli, Steel, Cashew, Cottonseed oilcake, Sesame
seed, Tur, Arabica Robusta Coffee, Copper
Cathode
Other base Metals, Energy Products, More
Agricultural products
Indices- NCDEXAGRI FUTEXAGRI NCDEXRAIN
Each product is selected after an in-depth
research market feedback
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Average daily volumes
Rs cr
Peak Volume for a single day Rs. 4271 cr on Mar
30 05
Impressive growth of NCDEX with 85 volume
contribution from agriculture Volumes in Steel
Copper picking up- daily average steel trade-
10,000 tonnes
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Physical Delivery on the platform
2005
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Collateral Management

• National Collateral Management Services Limited
  promoted by NCDEX
• Accreditation of Warehouses - parameter based
• Robust grading by reputed agencies
• Dematerialization of Warehouse receipts
• Bank lending against warehouse receipts
• Farmers deposit goods in accredited warehouses
• Goods assayed and graded
• Finance provided to farmers by banks against
  warehouse receipt

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Mention by Economic Survey

• Survey 2003-04
• Innovative spot prices polling process introduced
  by NCDEX
• Innovative demat settlement of commodities
  introduced
• Holding of commodity balances in electronic form
• Survey 2004-05
• Pilots in AP, MP and Gujarat
• Largest trading volumes in agriculture

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Policy requirements
Banks to participate
Act as aggregators cover own risk
Options
Benefit of upside Complement MSP?
Weather derivatives
Substitute for weather insurance
Public places carry prices
Wider price dissemination
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Thank You
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Shareholding of NCMSL
Rs crore