Sebi says no proposal to ban soybean futures

Soybean price in both spot and futures markets jumped by 20% in last one month following reports of crop damage

A ban on futures trade in soybean, a demand from the processing trade, is not being considered or favoured by the Securities and Exchange Board of India (Sebi).

Soybean prices in both the spot and futures markets jumped 20 per cent in the past month, on reports of crop damage in the major producing states of Rajasthan and Maharashtra. Soybean for delivery in November is trading at Rs 3,797 a quintal from Rs 3,162 a qtl a month before on the benchmark National Commodity & Derivatives Exchange (NCDEX). A similar jump was seen in the spot market.

The sudden spurt has irked soybean processors, having to pay more for the raw input when prices of soybean oil and meal have been under pressure for several years, due to lower prices of competing products. So, their margins are under stress, and the Soybean Processors’ Association (Sopa) asked Sebi for an urgent ban on futures trade.

“There have been several such demands in the past. We are not going to look at it. There will be no ban on futures,” said a Sebi official involved in the decision process. Their priority, he added, was to deepen the market, not banning trade in a commodity and creating fear.

Sopa blames the price surge on excessive speculation on futures exchanges, saying its members are finding the costs difficult to manage. An NCDEX spokesperson replied, “The allegations are presumptive and misconstrued. The contract is well regulated and has wide participation of varied value chain participants. The regulatory framework of the exchange, along with stringent trade limits and margins, ensures transparent and fair price discovery. Futures prices on the exchange platform are a reflection of the underlying physical market's demand-supply fundamentals. In the case of soybean, near-month futures prices are in fact quoting lower than the spot prices.  The Open Interest (deals not settled at the trading session’s conclusion) on the platform is approximately 200,000 tonnes, barely two per cent of the estimated crop size, which further refutes the argument of futures trade leading the spot prices.”

Soybean's contribution in NCDEX's turnover rose to 11 per cent in September from eight per cent in the previous two months.

Another industry body for oilseeds and oils, The Solvent Extractors’ Association, has urged Sebi to levy adequate margins and do what is needed to cool down prices. It feels there is 'artificial activity' in the futures market, which would harm farmers and meal exporters in the long run.

Sopa's forecast for output this year is 8.4 million tonnes, as compared to its revised estimate of nine mt for last year.