FMC set to permit guar futures again

Regulator is expected to clear proposals of exchanges to allow futures in guar seed & gum

Futures contracts in guar seeds and gum, banned a year ago, are set to be resumed, albeit with stringent conditions. The Forward Markets Commission (FMC) took the decision on Monday to allow futures contracts in the commodity. NCDEX and MCX are launching the contracts from tomorrow. The decision to permit futures trading was communicated to the exchanges late on Monday evening. Guar was delisted from trading in March 2012.

Earlier, FMC had sought the views of exchanges, as well as information on the stock of guar seeds and gum. It is understood exchanges have told FMC half the guar seed crop of 1.4 million tonnes for 2012-13 has been consumed; a large chunk of the remaining crop was with farmers, who were waiting to sell it in the futures market. An exchange official said farmers felt they would get better value for their produce on the futures platform. In December 2011, guar trading volumes had touched a peak on NCDEX. A sharp spurt in prices — up to Rs 1,00,195 a quintal for guar gum and Rs 30,533 for seeds on March 21, 2012, had ultimately led to the commodities being delisted on March 27, 2012. The prices had risen due to a sharp jump in guar gum exports. Before being delisted, guar futures accounted for about a third of NCDEX volumes. An NCDEX spokesperson said, “We are hoping to get the permission for guar futures and are ready launch it soon."

Now, FMC has proposed stringent conditions for futures trade in these commodities. These include an initial 10 per cent margin (the margin increases with rising prices). If the price rises in a single contract tenure, the margins would increase automatically, according to the FMC formula, said an official on condition of anonymity. In 2011-12, exports of guar gum stood at $3.38 billion; in 2012-13, exports rose to $3.39 billion. In 2009-10 and 2010-11, exports stood between $300 and $500 million.

The official said in the lean months of August and September, contracts for guar seeds and gum couldn't be launched. FMC doesn't encourage futures in agricultural commodities during lean months, when deliveries are unlikely. Exchanges feel futures in these commodities could be launched from June, subject to FMC's approval. Exporters have said the futures platform was very useful for hedging risks at a time when exports were increasing.  In the Jodhpur mandi, guar seed is being quoted at about Rs 8,500 a quintal, while gum is being quoted at about Rs 26,500.

BACK TO FUTURES

• FMC had sought views of exchanges, information on guar seeds and gum stock
• Exchanges said half the guar seed crop of 1.4 mt for 2012-13 had been consumed
• FMC said if the price rises in a single contract tenure, margins would rise as well
• In the lean months of August and September, contracts for guar seeds and gum can't be launched