NCDEX set to launch new cotton futures

The National Commodity & Derivatives Exchange (NCDEX) is launching 'intention matching futures contract' in Shankar Kapas variety of cotton on November 29, a company release stated.

Unlike the sellers' option and compulsory delivery contracts that are in vogue in exchanges, Shankar Kapas futures is an intention matching contract where both buyers and sellers accept or tender the delivery of executed contracts.

The settlement price for this cotton would be fixed on the average prevailing price in the four major markets of Rajkot, Kadi, Gondal and Bijapur.

The contract would be quoted in 20-kg lots and have a ticket size of Re 0.10. On the expiry of the contract, Shankar Kapas would be delivered from the four major centres, ie Rajkot, Kadi, Guntur and Akola.

An across-the-board demand from value chain participants "" growers, processors, exporters, and traders "" has encouraged the exchange to introduce the futures contract in this cotton variety.

"Our existing Kapas contract has been well received by the trade. We took a cue from this and jointly explored the feasibility of introducing the futures contract in Shankar Kapas with value chain participants. The trade has given us a positive feedback on this initiative. With the cotton season in full swing, we thought this is the appropriate time to roll out the new contract," said Shirkant Subbarayan, Chief Business Officer, NCDEX.

Shankar Kapas is the benchmark cotton variety grown in India. As Kapas is processed down the value chain, raw material hedging becomes important as the margins tend to get range-bound.

Shankar Kapas recorded a total production of over 90 lakh bales in the 2006-07 crop season. This year, the production estimates for this variety is about 115 lakh bales, valued at around Rs 11,000 crore.

Although the figures indicate a bumper crop for India, prices have remained firm compared with the 2006-07 season, mainly due to the increased international demand for the cotton variety.