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| Castorseed contract on NSEL from Jan | |
| Dilip Kumar Jha / Mumbai December 24, 2008, 0:44 IST | |
 The commodity market will very soon experience the benefit of trading on electronic spot exchange with much wider geographical sphere. National Spot Exchange (NSEL) that is launching compulsory delivery castorseed contract in the first week of January is expected to be traded at some premium to mandi (APMC) price because of tax benefits that it enjoys. The contract will provide distinctive benefits to the farmers and traders of Palanpur, Gujarat.
The company has dealt with two major oil mills in the region that are Jayant Organics and Jayant Oil Mills to buy castorseed at Rs 3-4 a quintal higher than its Palanpur mandi rates through online spot platform. This in turn would save the company Rs 8-9 a quintal in the form of mandi tax and transportation for procurement of raw materials from remote farmers.
“We have negotiated with the two major oil crushers in the region who have found our proposal interesting and they would procure all their raw material requirement through our online platform,” said Anjani Sinha, MD, NSEL on the sideline of Nafed Cotton launch ceremony. The two oil mills consume about 200,000 tonnes of castorseed produced in Palanpur region and constitute between 30-35 per cent market share in India.
Meanwhile, NSEL on Saturday launched compulsory delivery based customized contract for Nafed Cotton. This necessarily means that cotton traded on NSEL would be made deliverable only when it matches the quality parameters set by Nafed. The delivery should not necessarily be from the Nafed warehouses.
The National Agricultural Cooperative Marketing Federation of India (Nafed) contract for spot trading at NSEL platform will benefit the traders, textile mills, importers, exporters etc. by providing online delivery based cotton contracts and a neutral and transparent platform for them to hedge their price risk against fluctuating prices. The buyers located anywhere in the country will be able to negotiate electronically on a nationwide electronic platform by NSEL, while Nafed will be able to sell cotton bales through this platform in a risk free manner.
For this purpose, NSEL has designed 11 contracts for cotton deliverable at specific locations in Maharashtra region. Cotton contracts of T+8 have been made available for trading. The minimum lot size is 100 bales (170 kgs each).
The price of the contract will be made ex-warehouse basis — inclusive of loading/unloading, sampling/testing charges, insurance and free warehousing for five days while depositing/withdrawing commodities. In order to suit the requirements of Nafed, it has been decided to launch ex-warehouse — Nagpur, Dhulia, Wani, Aurangabad, Amravati, Parli, Yeoatmal, Parbani, Akola, Nanded and Jalgaon — delivery based spot contracts.
The launch of cotton trade means for Nafed an easy and risk free offloading of their holdings while traders would be persuaded to join NSEL platform for cotton procurement of benchmark variety.
Speaking on the occasion Rajeev Agarwal, member, Forward Markets Commission (FMC) said, “The futures markets are facing two challenges- limited quality benchmark and the lack of standardisation of spot trade. With the launch of spot trade on electronic platform, the national level quality parameters would be set which will also help poling fair spot prices for the settlement of contracts in futures market.”
On Tuesday, futures exchanges settle contracts through poled prices from spot market in absence of any referenceable benchmark price.
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