Spot exchanges set to launch wheat futures by Feb-end

Although futures exchanges are still awaiting approval from the government to commence trading in wheat, spot bourses are gearing up to launch the inflation-sensitive commodity towards the end of February 2009.

National Spot Exchange (NSEL), the spot trading platform of MCX, the country’s largest futures exchange, is planning to launch wheat trading for delivery in Gujarat and Madhya Pradesh initially. Though major wheat producing states, including Punjab and Haryana, have not yet granted permission to the exchange to offer the trade, others such as Bihar and Maharashtra could be delivery options.

Ever since the government delisted wheat from the futures platform in February 2008 on inflationary concerns, traders have been in a fix. Especially, flour millers were procuring negotiable quality wheat in bits and pieces from small traders to meet their daily requirement. Unavailability of quality produce hampered millers’ business, resulting in halving of some millers’ installed capacities and others shutting down their units. Wheat contributes 7.25 per cent of the wholesale price index (WPI), which measures inflation.

“Stock limit is the only major concern for us. Being a spot trading platform closely linked with the Agricultural Produce Marketing Committee (APMC) mandis, stock limit would be applicable to us,” said Anjani Sinha, MD and CEO of NSEL.

Anjani, however, clarified that no trader would be allowed to cross the limit imposed by respective states. Stock limit would be applicable on the basis of traders’ origin of state, he added.

For wheat, NSEL would offer flour mills standard quality with 8 per cent moisture content. But the quality being variable from state to state, the exchange has set a provision of premium and discount. Traders would be allowed to offer or accept delivery with a premium in the ratio of 1:1, which means if the moisture content is 9 per cent, then the wheat would be allowed to change hands at 1 per cent discount. But, if the moisture content is 7 per cent, then traders would have to pay 1 per cent premium.

“No speculative trade takes place on spot exchanges. Therefore, arbitrage opportunity between online spot exchange and mandis cannot be possible mainly because of other costs involved in over the counter trade,” said Anjani.

The spot trading arm of the National Commodity & Derivatives Exchange (NCDEX), NCDEX Spot Exchange is also understood to be preparing itself to commence trade in wheat around the same time.

“Despite the fact that potential is unlimited with room for another four-to-five online platforms, we do not want to commence trading and end up with zero volume. We are in talks with various stakeholders and many of them have evinced interest in spot trade,” said NCDEX head Rajesh Kumar Sinha, adding that NCDEX was drawing up plans to translate these talks into business.

Market sources, however, confirmed NCDEX’s plan to launch wheat by the beginning of the new season — early February to March-end.