Millers body seeks curbs on oilseeds futures

High prices have squeezed crushing margins of millers.

The Solvent Extractors Association (SEA) has sought curbs on the futures trade in oilseeds, saying high prices have squeezed crushing margins of millers in a statement today.

In a letter to the regulator and to the Union ministry of consumer affairs, SEA argued that six-month forward contracts always give rise to speculative activity, which is not healthy for Indian market conditions. Oilseeds are currently in short supply and hence, speculative activity should be restricted by all means, said SEA Executive Director B V Mehta.

“India’s current foreign currency outgo stands at the equivalent at Rs 28,000 crore for vegetable oil imports, which can be controlled by some measures, including curbing speculative activity on available seeds, increasing yields and expanding acreage area,” Mehta added.

Total imports of vegetable oil during the oil year (November-October) of 2008-09 jumped by 37 per cent to 8.66 million tonnes (MT), worth Rs 28,000 crore, from 6.31 MT valued at Rs 25,000 crore during the same period last year. India’s edible oil consumption is estimated this oil year at 15.5 MT as against the stagnant domestic production of 6.5 MT.

Oil mills are currently operating at 50 per cent of installed capacity due to non-availability of raw materials, as farmers are not willing to sell oilseeds, in anticipation of higher futures prices. At prevailing seed prices, crushing is not viable; a tonne of seed crush fetches a loss of Rs 1,000 a tonne for mills, says Mehta.

“Therefore, we have demanded from the government to restrict futures trading in oilseeds for two months only, the. current month and next month, which would control speculative activity,” Mehta said. Also existing futures contracts for the next six months should be squared off on the date of settlement next month; for all futures contracts, a minimum quantity of delivery should be made compulsory so that it corresponds to the physical market prices, which many a time varies abnormally, he added.

The margin money required for futures trading in oilseeds should be enhanced to a level that will discourage pure speculative activity in the market. Currently, the margin is only five per cent, which should be increased in multiple of five per cent for the months ahead,. Mehta said. He felt these measures would ensure the mechanism of futures trading is used for the purpose of risk management only.

Meanwhile, average soybean prices have risen sharply from Rs 1,982.4 a quintal in the pre-season September period to Rs 2,037.5 a quintal in October, Rs 2,272 per quintal in November and over Rs 2,400 a quintal so far in December.

Similarly, average rapeseed prices have surged from Rs 2,546 a quintal in October to Rs 2,653 a quintal in November and Rs 2,750 in December so far.