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FMC to allow relaunch of guar contract only after assessing kharif crop

Exchanges seek approval relaunch may be possible with the onset of harvesting season

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The commodity derivatives markets regulator the Forward Markets Commission (FMC) is unlikely to grant permission to commodity exchanges for the re-launch of guar contracts without assessing the crop situation during the ongoing kharif season.

India's two agri-centric commodity exchanges, National Commodity & Derivatives Exchange (NCDEX) and (Ace), have already submitted their applications for approval of re-launch with the FMC. Both guar seed and its derivative, guar gum, contracts were very active on these two platforms before the discontinued these, effective April 2.

The delay in re-launch assumes significance as these commodities were generating significant volume and turnover on both exchanges. The re-launch may bring additional business to these exchanges and boost their turnover.

"We have received applications from exchanges for granting permission for the re-launch of guar seed and guar gum contracts. But, we would not allow the re-launch without assessing the current season's crop," said Ramesh Abhishek, chairman, FMC.

The regulator cited "excessive speculation" as the major reason for suspending these commodities temporarily from futures trade, which lifted the price to a historic level of Rs 33,000 a quintal and Rs 1,00,000 a quintal for guar seed and guar gum, respectively. According to an Assocham report, the ideal price of the guar bean should be Rs 10 per kg, while guar seed and gum should be traded at Rs 25 per kg and Rs 50 per kg, respectively.

Meanwhile, K V Thomas, minister for consumer affairs, food and public distribution (MCA), had asked the FMC to reinvestigate the issues involved in the price hike in guar seed. The FMC had found 4,490 entities involved in the guar gum price manipulation, in a report submitted to the ministry. The report also said these entities made a profit of Rs 1,291 crore with traders holding stocks to sell at higher prices. The ministry, however, is unlikely to take any action against these entities.

"Making profits do not amount to a criminal offense and hence, we do not see that these units have done any offense by generating profits," said Rajeev Agarwal, secretary, MCA.

The FMC, however, is understandably working out to collect data from its own sources on the crop sown.

Sanjay Periwal, a Jodhpur-based guar trader said monsoon has revived in the last fortnight, encouraging Rajasthan farmers to sow more guar seed. Consequently, the acreage under guar seed shot up across all regions in western Rajasthan. "Whoever has soil, wants to sow guar this season due to last year's historic price," said Periwal.

An FMC official said, "The re-launch of guar contracts may be delayed as the FMC is yet to assess the crop, the sowing being underway. Once, the sowing is complete, the FMC would begin assessment and then the permission to re-launch may be granted. Permission would be possible for delivery post-December."

Secondly, the opportunity for sowing bajra is lost due to delayed monsoon. Hence, farmers are sowing guar in the uncovered area of bajra. As a consequence, the acreage under guar is likely to double this year, said Periwal.

Traders forecast at least 50 per cent increase in guar seed production even in case of scanty rainfall, going forward. Hence, guar seed output may go up to at least 19 lakh tonnes this year as against 12.5 lakh tonnes last year.

Meanwhile, the price of guar seed has plunged to Rs 14,000 a tonne now, a decline of Rs 5,000 a tonne so far this month. In the last one month, however, the price has declined by 33 per cent or Rs 7,000 a tonne.

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