interim report ishwar

8/6/2019 Interim Report Ishwar

1/55

Interim Report

On

A Study on Indian Commodity

Market and There by Comparing

&

Submitted By:

Ishwar Mishra

Submitted To:

Mrs. Daisy Kurien


2/55

Acknowledgement


3/55


4/55

Introduction to the Commodity

Market

Commodity Trading

Over the modern age of investing, commodity trading has emerged as an

important player in the way that people invest in and speculate. It was

developed as a reaction to the way that business is conducted, and it

continues today in the form of commodities trading online. Many different

people turn their business know how into a profitable venture, and it iscommodities and futures trading that helps them get there. Simply put,

commodities are items like, wheat, corn, gold and silver, and cattle and

pork bellies, and crude oil. When farmers take their crop to "market",

they are selling commodities. Trading commodities is the world's one

perfect business. The upside potential is unlimited and you can control

the downside. You can trade commodities on a part time basis or a full-

time basis. You can spend as little as an and earn a full-time income.

The modern commodity markets have their roots in the trading of

agricultural products. While wheat and corn, cattle and pigs, were widely

traded using standard instruments in the 19th century in the United

States, other basic foodstuffs such as soybeans were only added quite

recently in most markets. For a commodity market to be established

there must be very broad consensus on the variations in the product that

make it acceptable for one purpose or another.


5/55

The economic impact of the development of commodity

markets is hard to over-estimate. Through the 19th century "the

exchanges became effective spokesmen for, and innovators of,

improvements in transportation, warehousing, and financing, whichpaved the way to expanded interstate and international trade."

Historically, dating from ancient Sumerian use of sheep or

goats, or other peoples using pigs, rare seashells, or other items as

commodity money , people have sought ways to standardize and trade

contracts in the delivery of such items, to render trade itself more

smooth and predictable.

Commodity money and commodity markets in a crude early

form are believed to have originated in summer where small baked clay

tokens in the shape of sheep or goats were used in trade. Sealed in clay

vessels with a certain number of such tokens, with that number written

on the outside, they represented a promise to deliver that number. This

made them a form of commodity money - more than an " I.O.U. " but less

than a guarantee by a nation-state or bank. However, they were also

known to contain promises of time and date of delivery - this made them

like a modern futures contract . Regardless of the details, it was only

possible to verify the number of tokens inside by shaking the vessel or by

breaking it, at which point the number or terms written on the outside

became subject to doubt. Eventually the tokens disappeared, but thecontracts remained on flat tablets. This represented the first system of

commodity accounting .
http://en.wikipedia.org/wiki/Sumerianhttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/Sumerhttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/I.O.U.http://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Accountinghttp://en.wikipedia.org/wiki/Sumerianhttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/Sumerhttp://en.wikipedia.org/wiki/Commodity_moneyhttp://en.wikipedia.org/wiki/I.O.U.http://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Accounting


6/55

However, the Commodity status of living things is always subject

to doubt - it was hard to validate the health or existence of sheep or

goats. Excuses for non-delivery were not unknown, and there are

recovered Sumerian letters that complain of sickly goats, sheep that hadalready been fleeced, etc.

If a seller's reputation was good, individual "backers" or

"bankers" could decide to take the risk of "clearing" a trade. The

observation that trust is always required between markets participants

later led to credit money . But until relatively modern times,

communication and credit were primitive. Classical civilizations builtcomplex global markets trading gold or silver for spices, cloth, wood and

weapons, most of which had standards of quality and timeliness.

Considering the many hazards of climate, piracy, theft and abuse of

military fiat by rulers of kingdoms along the trade routes, it was a major

focus of these civilizations to keep markets open and trading in these

scarce commodities. Reputation and clearing became central concerns,

and the states which could handle them most effectively became very

powerful empires, trusted by many peoples to manage and mediate trade

and commerce.

Spot trading

Spot trading is any transaction where delivery either takes place

immediately, or if there is a minimum lag, due to technical constraints,

between the trade and delivery. Commodities constitute the only spot

markets which have existed nearly throughout the history of humankind.
http://en.wikipedia.org/wiki/Credit_moneyhttp://en.wikipedia.org/wiki/Military_fiathttp://en.wikipedia.org/wiki/Credit_moneyhttp://en.wikipedia.org/wiki/Military_fiat


7/55

Forward contracts

A forward contract is an agreement between two parties to exchange at

some fixed future date a given quantity of a commodity for a price

defined today.

Futures contracts

A futures contract has the same general features as a forward contract

but is transacted through a futures exchange.

Commodity and Futures contracts are based on whats termed "Forward"Contracts. Early on these "forward" contracts (agreements to buy now,

pay and deliver later) were used as a way of getting products from

producer to the consumer. These typically were only for food and

agricultural Products. Forward contracts have evolved and have been

standardized into what we know today as futures contracts. Although

more complex today, early Forward contracts for example, were used

for rice in seventeenth century Japan. Modern "forward", or futures

agreements, began in Chicago in the 1840s, with the appearance of the

railroads. Chicago, being centrally located, emerged as the hub between

Midwestern farmers and producers and the east coast consumer

population centers.

Hedging

"Hedging ", a common (and sometimes mandatory) practice of farming

cooperatives insures against a poor harvest by purchasing futures

contracts in the same commodity. If the cooperative has significantly less

of its product to sell due to weather or insects, it makes up for that loss
http://en.wikipedia.org/wiki/Hedginghttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Hedginghttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Futures_contract


8/55

with a profit on the markets, since the overall supply of the crop is short

everywhere that suffered the same conditions.

Whole developing nations may be especially vulnerable, and even their

currency tends to be tied to the price of those particular commodity items

until it manages to be a fully developed nation . For example, one could

see the nominally fiat money of Cuba as being tied to sugar prices, since

a lack of hard currency paying for sugar means less foreign goods per

peso in Cuba itself. In effect, Cuba needs a hedge against a drop in sugar

prices, if it wishes to maintain a stable quality of life for its citizens.

Delivery and condition guarantees

In addition, delivery day, method of settlement and delivery point must

all be specified. Typically, trading must end two (or more) business days

prior to the delivery day, so that the routing of the shipment can be

finalized via ship or rail, and payment can be settled when the contract

arrives at any delivery point.

Standardization

U.S. soybean futures, for example, are of standard grade if they are

"GMO or a mixture of GMO and Non-GMO No. 2 yellow soybeans of

Indiana, Ohio and Michigan origin produced in the U.S.A. (Non-screened,

stored in silo)," and of deliverable grade if they are "GMO or a mixture of

GMO and Non-GMO No. 2 yellow soybeans of Iowa, Illinois and Wisconsin

origin produced in the U.S.A. (Non-screened, stored in silo)." Note the

distinction between states, and the need to clearly mention their status
http://en.wikipedia.org/wiki/Developing_nationshttp://en.wikipedia.org/wiki/Developed_nationhttp://en.wikipedia.org/wiki/Fiat_moneyhttp://en.wikipedia.org/wiki/Sugarhttp://en.wikipedia.org/wiki/Delivery_pointhttp://en.wikipedia.org/wiki/Soybeanhttp://en.wikipedia.org/wiki/Developing_nationshttp://en.wikipedia.org/wiki/Developed_nationhttp://en.wikipedia.org/wiki/Fiat_moneyhttp://en.wikipedia.org/wiki/Sugarhttp://en.wikipedia.org/wiki/Delivery_pointhttp://en.wikipedia.org/wiki/Soybean


9/55

as "GMO" (" Genetically Modified Organism ") which makes them

unacceptable to most " organic " food buyers.

Similar specifications apply for cotton, orange juice, cocoa, sugar, wheat,

corn, barley, pork bellies , milk, feedstuffs, fruits, vegetables, other

grains, other beans, hay, other livestock, meats, poultry, eggs, or any

other commodity which is so traded.

The concept of an interchangeable deliverable or guaranteed delivery is

always to some degree a fiction. Trade in commodities is like trade in any

other physical product or service. No magic of the commodity contract

itself makes "units" of the product totally uniform nor gets it to the

delivery point safely and on time.

Regulation of commodity markets

Cotton, kilowatt-hours of electricity, board feet of wood, long distance

minutes, royalty payments due on artists' works, and other products and

services have been traded on markets of varying scale, with varying

degrees of success. One issue that presents major difficulty for creators

of such instruments is the liability accruing to the purchaser:

Unless the product or service can be guaranteed or insured to be free of

liability based on where it came from and how it got to market, e.g.

kilowatts must come to market free from legitimate claims for smog

death from coal burning plants, wood must be free from claims that it

comes from protected forests, royalty payments must be free of claims of

plagiarism or piracy, it becomes impossible for sellers to guarantee a

uniform delivery.
http://en.wikipedia.org/wiki/Genetically_Modified_Organismhttp://en.wikipedia.org/wiki/Organic_farminghttp://en.wikipedia.org/wiki/Pork_bellyhttp://en.wikipedia.org/wiki/Genetically_Modified_Organismhttp://en.wikipedia.org/wiki/Organic_farminghttp://en.wikipedia.org/wiki/Pork_belly


10/55

Generally, governments must provide a common regulatory or insurance

standard and some release of liability, or at least a backing of the

insurers, before a commodity market can begin trading. This is a major

source of controversy in for instance the energy market, wheredesirability of different kinds of power generation varies drastically. In

some markets, e.g. Toronto, Canada, surveys established that customers

would pay 10-15% more for energy that was not from coal or nuclear,

but strictly from renewable sources such as wind.

In the United States, the principal regulator of commodity and futures

markets is the Commodity Futures Trading Commission .

Proliferation of contracts, terms, and derivatives

However, if there are two or more standards of risk or quality, as there

seem to be for electricity or soybeans, it is relatively easy to establish

two different contracts to trade in the more and less desirable deliverable

separately. If the consumer acceptance and liability problems can besolved, the product can be made interchangeable, and trading in such

units can begin.

Since the detailed concerns of industrial and consumer markets vary

widely, so do the contracts and "grades" tend to vary significantly from

country to country? A proliferation of contract units, terms, and futures

contracts have evolved combined into an extremely sophisticated rangeof financial instruments .

These are more than one-to-one representations of units of a given type

of commodity, and represent more than simple futures contracts for
http://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/Financial_instrumentshttp://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/Financial_instruments


11/55

future deliveries. These serve a variety of purposes from simple gambling

to price insurance.

The underlying of futures contracts are no longer restricted to

commodities .

Oil and fat

Building on the infrastructure and credit and settlement networks

established for food and precious metals , many such markets have

proliferated drastically in the late 20th century. Oil was the first form of

energy so widely traded, and the fluctuations in the oil markets are of

particular political interest.

Some commodity market speculation is directly related to the stability of

certain states, e.g. during the Persian Gulf War , speculation on the

survival of the regime of Saddam Hussein in Iraq . Similar political

stability concerns have from time to time driven the price of oil . Some

argue that this is not so much a commodity market but more of an

assassination market speculating on the survival (or not) of Saddam or

other leaders whose personal decisions may cause oil supply to fluctuate

by military action.

The oil market is, however, an exception. Most markets are not so tied to

the politics of volatile regions - even natural gas tends to be more stable,

as it is not traded across oceans by tanker as extensively.
http://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Commoditieshttp://en.wikipedia.org/wiki/Precious_metalhttp://en.wikipedia.org/wiki/Persian_Gulf_Warhttp://en.wikipedia.org/wiki/Saddam_Husseinhttp://en.wikipedia.org/wiki/Iraqhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Assassination_markethttp://en.wikipedia.org/wiki/Underlyinghttp://en.wikipedia.org/wiki/Commoditieshttp://en.wikipedia.org/wiki/Precious_metalhttp://en.wikipedia.org/wiki/Persian_Gulf_Warhttp://en.wikipedia.org/wiki/Saddam_Husseinhttp://en.wikipedia.org/wiki/Iraqhttp://en.wikipedia.org/wiki/Petroleumhttp://en.wikipedia.org/wiki/Assassination_market


12/55

Commodity markets and protectionism

Developing countries (democratic or not) have been moved to harden

their currencies, accept IMF rules, join the WTO , and submit to a broad

regime of reforms that amount to a "hedge" against being isolated.

China's entry into the WTO signaled the end of truly isolated nations

entirely managing their own currency and affairs. The need for stable

currency and predictable clearing and rules-based handling of trade

disputes, has led to global trade hegemony - many nations "hedging" on

a global scale against each other's anticipated " protectionism ", were they

to fail to join the WTO .

There are signs, however, that this regime is far from perfect. U.S. trade

sanctions against Canadian softwood lumber (within NAFTA) and foreign

steel (except for NAFTA partners Canada and Mexico) in 2002 signaled a

shift in policy towards a tougher regime perhaps more driven by political

concerns - jobs, industrial policy, even sustainable forestry and logging

practices.

Nature's commodity outputs

Commodity thinking is undergoing a more direct revival thanks to the

theorists of " natural capital " whose products, some economists argue, are

the only genuine commodities - air, water, and calories we consume

being mostly interchangeable when they are free of pollution or disease.Whether we wish to think of these things as tradable commodities rather

than birthrights has been a major source of controversy in many nations.
http://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/IMFhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Natural_capitalhttp://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/IMFhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Protectionismhttp://en.wikipedia.org/wiki/World_Trade_Organizationhttp://en.wikipedia.org/wiki/Natural_capital


13/55

Most types of environmental economics consider the shift to measuring

them inevitable, arguing that reframing political economy to consider the

flow of these basic commodities first and foremost, helps avoids use of

any military fiat except to protect " natural capital " itself, and basingcredit-worthiness more strictly on commitment to preserving biodiversity

aligns the long-term interests of excretions , societies, and individuals.

They seek relatively conservative sustainable development schemes that

would be amenable to measuring well-being over long periods of time,

typically "seven generations", in line with Native American thought.

Weather trading

However, this is not the only way in which commodity thinking interacts

with ecologists' thinking. Hedging began as a way to escape the

consequences of damage done by natural conditions. It has matured not

only into a system of interlocking guarantees, but also into a system of

indirectly trading on the actual damage done by weather, using weather

derivatives . For a price, this relieves the purchaser of the following types

of concerns:

"Will a freeze hurt the Brazilian coffee crop? Will there be a drought in the

U.S. Corn Belt ? What are the chances that we will have a cold winter,

driving natural gas prices higher and creating havoc in Florida orange

areas? What is the status of El Nio ?"

Emissions trading

Weather trading is just one example of "negative commodities", units of

which represent harm rather than good.
http://en.wikipedia.org/wiki/Environmental_economicshttp://en.wikipedia.org/wiki/Political_economyhttp://en.wikipedia.org/wiki/Military_fiathttp://en.wikipedia.org/wiki/Natural_capitalhttp://en.wikipedia.org/wiki/Biodiversityhttp://en.wikipedia.org/wiki/Ecoregionshttp://en.wikipedia.org/wiki/Sustainable_developmenthttp://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Weather_derivativeshttp://en.wikipedia.org/wiki/Weather_derivativeshttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Coffeehttp://en.wikipedia.org/wiki/Corn_Belthttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/El_Ni%C3%83%C2%B1ohttp://en.wikipedia.org/wiki/Environmental_economicshttp://en.wikipedia.org/wiki/Political_economyhttp://en.wikipedia.org/wiki/Military_fiathttp://en.wikipedia.org/wiki/Natural_capitalhttp://en.wikipedia.org/wiki/Biodiversityhttp://en.wikipedia.org/wiki/Ecoregionshttp://en.wikipedia.org/wiki/Sustainable_developmenthttp://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Weather_derivativeshttp://en.wikipedia.org/wiki/Weather_derivativeshttp://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Coffeehttp://en.wikipedia.org/wiki/Corn_Belthttp://en.wikipedia.org/wiki/Natural_gashttp://en.wikipedia.org/wiki/El_Ni%C3%83%C2%B1o


14/55

"Economy is three fifths of ecology" argues Mike Nickerson , one of many

economic theorists who hold that nature's productive services and waste

disposal services are poorly accounted for. One way to fairly allocate the

waste disposal capacity of nature is " cap and trade " market structure thatis used to trade toxic emissions rights in the United States, e.g. SO2. This

is in effect a "negative commodity", a right to throw something away.

In this market, the atmosphere's capacity to absorb certain amounts of

pollutants is measured, divided into units, and traded amongst various

market players. Those who emit more SO2 must pay those who emit

less. Critics of such schemes argue that unauthorized or unregulatedemissions still happen, and that "grandfathering" schemes often permit

major polluters, such as the state governments' own agencies, or poorer

countries, to expand emissions and take jobs, while the SO2 output still

floats over the border and causes death.

In practice, political pressure has overcome most such concerns and it is

questionable whether this is a capacity that depends on U.S. clout: The

Kyoto Protocol established a similar market in global greenhouse gas

emissions without U.S. support.

Community as commodity?

This highlights one of the major issues with global commodity markets of

either the positive or negative kind. A community must somehow believethat the commodity instrument is real, enforceable, and well worth

paying for.
http://en.wikipedia.org/wiki/Mike_Nickersonhttp://en.wikipedia.org/wiki/Cap_and_tradehttp://en.wikipedia.org/wiki/Kyoto_Protocolhttp://en.wikipedia.org/wiki/Mike_Nickersonhttp://en.wikipedia.org/wiki/Cap_and_tradehttp://en.wikipedia.org/wiki/Kyoto_Protocol


15/55

A very substantial part of the anti-globalization movement opposes the co

modification of currency, national sovereignty, and traditional cultures.

The capacity to repay debt, as in the current global credit money regime

anchored by the Bank for International Settlements , does not in theirview correspond to measurable benefits to human well-being worldwide.

They seek a fairer way for societies to compete in the global markets that

will not require conversion of natural capital to natural resources , nor

human capital to move to developed nations in order to find work.

Some economic systems by green economists would replace the " gold

standard " with a " biodiversity standard ". It remains to be seen if suchplans have any merit other than as political ways to draw attention to the

way capitalism itself interacts with life.

Is human life a commodity?

While classical, neoclassical, and Marxist approaches to economics tend

to treat labor differently, they are united in treating nature as a resource.

The green economists and the more conservative environmental

economics argue that not only natural ecologies, but also the life of the

individual human being is treated as a commodity by the global markets.

A good example is the IPCC calculations cited by the Global Commons

Institute as placing a value on a human life in the developed world "15x

higher" than in the developing world, based solely on the ability to pay toprevent climate change.
http://en.wikipedia.org/wiki/Anti-globalization_movementhttp://en.wikipedia.org/wiki/Credit_moneyhttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Natural_capitalhttp://en.wikipedia.org/wiki/Natural_resourceshttp://en.wikipedia.org/wiki/Human_capitalhttp://en.wikipedia.org/wiki/Developed_nationshttp://en.wikipedia.org/wiki/Green_economistshttp://en.wikipedia.org/wiki/Gold_standardhttp://en.wikipedia.org/wiki/Gold_standardhttp://en.wikipedia.org/w/index.php?title=Biodiversity_standard&action=edithttp://en.wikipedia.org/wiki/Capitalismhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Green_economistshttp://en.wikipedia.org/wiki/Environmental_economicshttp://en.wikipedia.org/wiki/Environmental_economicshttp://en.wikipedia.org/wiki/IPCChttp://en.wikipedia.org/wiki/Anti-globalization_movementhttp://en.wikipedia.org/wiki/Credit_moneyhttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Natural_capitalhttp://en.wikipedia.org/wiki/Natural_resourceshttp://en.wikipedia.org/wiki/Human_capitalhttp://en.wikipedia.org/wiki/Developed_nationshttp://en.wikipedia.org/wiki/Green_economistshttp://en.wikipedia.org/wiki/Gold_standardhttp://en.wikipedia.org/wiki/Gold_standardhttp://en.wikipedia.org/w/index.php?title=Biodiversity_standard&action=edithttp://en.wikipedia.org/wiki/Capitalismhttp://en.wikipedia.org/wiki/Economicshttp://en.wikipedia.org/wiki/Green_economistshttp://en.wikipedia.org/wiki/Environmental_economicshttp://en.wikipedia.org/wiki/Environmental_economicshttp://en.wikipedia.org/wiki/IPCC


16/55

Is free time a commodity?

Accepting this result, some argue that to put a price on both is the most

reasonable way to proceed to optimize and increase that value relative to

other goods or services. This has led to efforts in measuring well-being ,

to assign a commercial " value of life ", and to the theory of Natural

Capitalism - fusions of green and neoclassical approaches - which focus

predictably on energy and material efficiency, i.e. using far less of any

given commodity input to achieve the same service outputs as a result.

Indian economist Amartya Sen , applying this thinking to human freedom

itself, argued in his 1999 book "Development as Freedom" that human

free time was the only real service, and that sustainable development

was best defined as freeing human time. Sen won the Nobel Prize in

Economics in 1999 and based his book on invited lectures he gave at the

World Bank .
http://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Value_of_lifehttp://en.wikipedia.org/wiki/Natural_Capitalismhttp://en.wikipedia.org/wiki/Natural_Capitalismhttp://en.wikipedia.org/wiki/Amartya_Senhttp://en.wikipedia.org/wiki/Sustainable_developmenthttp://en.wikipedia.org/wiki/Nobel_Prize_in_Economicshttp://en.wikipedia.org/wiki/Nobel_Prize_in_Economicshttp://en.wikipedia.org/wiki/1999http://en.wikipedia.org/wiki/World_Bankhttp://en.wikipedia.org/wiki/Measuring_well-beinghttp://en.wikipedia.org/wiki/Value_of_lifehttp://en.wikipedia.org/wiki/Natural_Capitalismhttp://en.wikipedia.org/wiki/Natural_Capitalismhttp://en.wikipedia.org/wiki/Amartya_Senhttp://en.wikipedia.org/wiki/Sustainable_developmenthttp://en.wikipedia.org/wiki/Nobel_Prize_in_Economicshttp://en.wikipedia.org/wiki/Nobel_Prize_in_Economicshttp://en.wikipedia.org/wiki/1999http://en.wikipedia.org/wiki/World_Bank


17/55

Indian Commodity Market Commodities' trading in India is on the cusp of

transformation. Organized commodities trading as a professional service-oriented set-up, is a recent phenomenon in India but is growing at a

tremendous pace, emerging as the largest and most exciting service

sectors of this decade.

In order to match up with this phenomenal growth and pace,

there is always going to be a need for passionate, trained commodities

professionals. In addition, the fast changing commodities sector demands

that professionals learn new skills, improve their efficiency, learn to

compete and think out of the box. All this requires an education that is

intensive, comprehensive and closely linked to the commodities

derivatives market, through experiential learning.

Over the last couple of years, MCX has been recognized as anexchange, which adds immense intellectual, cultural and professional

energy to the industry on a continuous basis. It believes in innovation -

innovation both in theory and practice to meet the needs of the industry

not only today but into the future.

The training department of MCX has been in the vanguard of

knowledge dissemination across a wide spectrum of participants in the

commodity industry, more than 3,000 individuals have directly benefited

from the various training programs conducted by the exchange during


18/55

the year 2005-06, in line with the pace of growth of the commodity

market in India.

The commodity market has evolved significantly from the days

when farmers hauled bushels of wheat and corn to the local market. Inthe 1800s, demand for standardized contracts for trading agricultural

products led to the development of commodity futures exchanges. Today,

futures and options contracts on a huge array of agricultural products,

metals, energy products and soft commodities can be traded on

exchanges all over the world.


19/55

Introduction to the Commodity

Future Market

Meaning and Objectives of commodity futures

A commodity futures contract is a contractual agreement between two

parties to buy or sell a specified quantity and quality of commodity at a

certain time in future at a certain price agreed at the time of entering into

the contract on the commodity futures exchange.

Objectives and benefits of commodity futures are as follows -

Hedging - price risk management by risk mitigation

Speculation - take advantage of favorable price movements

Leverage - pay low margin to enjoy large exposure

Liquidity - ease of entry and exit of marketPrice discovery - for taking farming and business decisions

Price stabilization along with balancing demand and supply position

Facilitates integrated price structure

Flexibility, certainty and transparency in purchasing commodities

facilitate bank financing

Facilitates 'informed' lending by the banks the primary

objectives for any futures exchange are effective price discovery and

efficient price risk management. In commodity futures, it is necessary to

distinguish between investment commodities and consumption

commodities. An investment commodity is generally held for investment


20/55

purposes whereas consumption commodities are held mainly for

consumption purposes. Gold and Silver can be classified as investment

commodities whereas oil and steel can be classified as consumption

commodities.

Difference between Cash and Future market

Cash market is the market for buying and selling physical commodity at a

negotiated price. Delivery of the commodity takes place immediately.

Futures market is the market for buying and selling standardized contract

of the commodity at a pre-determined price. Delivery of the commodity

takes place during a future delivery period of the contract if the option of

delivery is exercised.

Difference between Futures and Forward contract

By Definition

Futures contract is an agreement between two parties to buy or sell a

specified quantity and quality of asset at a certain time in future at a

certain price agreed at the time of entering into the contract on the

futures exchange.

Forward contract is an agreement entered between two parties to buy

or sell an asset at a future date for an agreed price. Forward contract

is not traded on an exchange.

Trading place: Futures contract is entered on the centralized tradingplatform of the exchange. Forward contract is OTC in nature.

Size of the contract: Futures contract is standardized in terms of

quantity and quality as specified by the exchange. Size of the forward


21/55

contract is customized as per the terms of agreement between the

buyer and seller.

Transparency in contract price: Contract price of futures contract is

transparent as it is available on the centralized trading screen of theexchange. Contract price of forward contract is not transparent, as it

is not publicly disclosed.

Valuation of open position and margin requirement: In case of

futures contract, valuation of open position is calculated as per the

official closing price on a daily basis and Mark-to-Market margin

requirement exists. In case of forward contract, valuation of open

position is not calculated on a daily basis and there is no provision of

Mark-to-Market margin requirement.

Liquidity: Futures contract is more liquid as it is traded on the

Exchange. Forward contract is less liquid due to its customized nature

and mutual trade.

Counter party risk: In futures contract the Clearing House becomes

a counter party to each transaction, which is called Novation, making

counter party risk nil. In forward contract, counter party risk is high

due to decentralized nature of the transaction.

Regulations: Futures contract is regulated by a government

regulatory authority and the Exchange. Forward contract, is not

regulated by any authority or exchange..

Settlement: Futures contract can be settled in cash or physical

delivery, depending on the commodity futures contract specification.

Forward contract is generally settled by physical delivery.

Delivery: Delivery tendered in case of futures contract should be of

a standard quantity and quality as per contract specifications, at


22/55

designated delivery centers of the Exchange. Delivery in case of

forward contract is carried out at delivery centre specified in

customized bilateral agreement.

Participants in Commodity derivatives:

Hedgers: Hedgers are interested in transferring risk associated with

transacting or carrying underlying physical asset.

Speculators: Speculators are interested in making money by taking a

view on future price movements. Commodity futures allow speculators

to create high leveraged positions to undertake calculative risk, withthe objective of correctly predicting the market movement.

Arbitragers: Arbitragers are interested in locking in a minimum risk

profit by simultaneously entering into transactions in two or more

markets. Arbitragers lock in profit when they spot cash and carry

arbitrage opportunity; or reverse cash and carry arbitrage

opportunity.

BENEFITS OF HEDGING

Hedging is the most common method of price risk

management. It is the strategy of offsetting price risk that is inherent in

a spot market by taking an equal but opposite position in the futures

market. Futures markets are used as a mode by hedgers to protect their

businesses from adverse price changes, which could dent the profitability

of their business. Hedging benefits all participants who are involved in

trading of commodities like farmers, processors, merchandisers,

manufacturers, exporters, importers, etc. The following are 2

hypothetical illustrations of the benefits of hedging:


23/55

Hypothetical Illustration 1: A wheat miller enters into a contract

to sell flour to a bread manufacturer four months from now. The price is

agreed upon today though the flour would only be delivered after four

months. The miller is worried about the rise in the price of wheat duringthe course of next four months. A rise in the price of wheat would result

in losses on the contract to the miller. To safeguard against the risk of

increasing prices of wheat, the miller buys wheat futures contracts that

call for the delivery of wheat in four months time. After the expiry of four

months, as feared by the miller, the price of wheat may have risen. The

miller then purchases the wheat in the spot market at a higher price.

However, since he has hedged in the futures market, he can now sell his

contract in the futures market at a gain since there is an increase in the

futures price as well. He thus offsets his purchase of wheat at a higher

cost by selling the futures contract thereby protecting his profit on the

sale of the flour. Thus, the wheat miller hedges against exposure to price

risk.


24/55

Hypothetical Illustration 2: A farmer plans to harvest Guarseed

crop in the month of November. But in the harvesting season

(November), the Guarseed prices usually decline due to excess supply inthe market. This usually forces the farmer, who requires income for the

next subsequent harvesting season, o sell his harvest at a discount. The

farmer has two options to counter this risk he is exposed due to price

fluctuations:

Option A: Store the Guarseed, which has been harvested for a few

months and subsequently sell the Guarseed when the prices increase (in

the non-harvest season). But, this would not be possible if the farmer

requires the proceeds from the sale of his harvest to finance the next

crop season. Also, the farmer would require adequate storage space and

would require following preservation techniques to ensure that the stored

harvest would not be destroyed due to infestation.

Option B: Alternatively, the farmer can hedge himself by

selling November Guarseed Futures contract in the month of September.Any decline in the spot prices in the month of November would result in

decline in the futures prices, which he has already sold at a higher price.

Upon harvest, the farmer would offset his futures transaction by buying

Guarseed November futures contract and simultaneously sell his

Guarseed crop harvest in the physical market. This ensures that the

farmer is protected against any decline in the prices in the physical

market.


25/55

Hypothetical Illustration 3: An automobile manufacturer

purchases huge quantities of steel as raw material for automobile

production. The automobile manufacturer enters into a contractual

agreement to export automobiles 3 months hence to dealers in East

European market. This presupposes that the contractual obligation has

been fixed at the time of signing the contractual agreement for exports.

The automobile manufacturer is now exposed to risk in the form of

increasing steel prices. In order to hedge against price risk, the

automobile manufacturer can buy Steel futures contracts, which would

mature 3 months hence. In case of increasing or decreasing steel prices,

the automobile manufacturer is protected. Let us analyze the different

scenarios:Scenario.

1: Increasing Steel Prices

If steel prices increase, this would result in increase in the value of


26/55

the Futures contracts, which the automobile manufacturer has bought.

Hence, he makes profit in the futures transaction. But the automobile

manufacturer needs to buy Steel in the physical market to meet his

export obligation. This means that he faces a corresponding loss in thephysical market. But this loss is offset by his gains in the futures market.

Finally, at the time of purchasing steel in the physical market, the

automobile manufacturer can square off his position in the futures market

by selling the Steel Futures contract, for which he has an open position.

Scenario

2: Decreasing Steel Prices

If steel prices decrease, this would result in decrease in the value

of the Futures contracts, which the automobile manufacturer has bought.

Hence, he makes losses in the futures transaction. But the automobile

manufacturer needs to buy Steel in the physical market to meet his

export obligation. This means that he faces a corresponding gain in the

physical market. The loss in the futures market is offset by his gains in

the physical market. Finally, at the time of purchasing steel in thephysical market, the automobile manufacturer can square off his position

in the futures market by selling the Steel Futures contract, for which he

has an open position. This results in a perfect hedge to lock the profits

and protect from increase or decrease in raw material prices. This also

provides the added advantage of Just In Time Inventory management for

the automobile manufacturer.


27/55

Different Commodity Exchanges of India..


28/55

Commodity Exchanges

A brief description of commodity exchanges are those which trade in

particular commodities, neglecting the trade of securities, stock indexfutures and options etc.

In the middle of 19th century in the United States, businessmen began

organizing market forums to make the buying and selling of commodities

easier. These central marketplaces provided a place for buyers and

sellers to meet, set quality and quantity standards, and establish rules of

business.

Agricultural commodities were mostly traded but as long as there are

buyers and sellers, any commodity can be traded. In 1872, a group of

Manhattan dairy merchants got together to bring chaotic condition in New

York market to a system in terms of storage, pricing, and transfer of

agricultural products.

In 1933, during the Great Depression, the Commodity Exchange, Inc.

was established in New York through the merger of four small exchanges

the National Metal Exchange, the Rubber Exchange of New York, the

National Raw Silk Exchange, and the New York Hide Exchange.

The major commodity markets are in the United Kingdom and in the USA.

In India there are 25 recognized future exchanges, of which there are

three national level multi-commodity exchanges. After a gap of almost

three decades, Government of India has allowed forward transactions in

commodities through Online Commodity Exchanges, a modification of


29/55


30/55

Headquartered in Mumbai Multi Commodity Exchange of India

Limited (MCX), is an independent and de-mutualized exchange with a

permanent recognition from Government of India. Key shareholders of

MCX are Financial Technologies (India) Ltd., State Bank of India, UnionBank of India, Corporation Bank, Bank of India and Canara Bank. MCX

facilitates online trading, clearing and settlement operations for

commodity futures markets across the country.

MCX started offering trade in November 2003 and has built strategic

alliances with Bombay Bullion Association, Bombay Metal Exchange,

Solvent Extractors Association of India, Pulses Importers Association and

Shetkari Sanghatana.

National Multi-Commodity Exchange of India Limited (NMCEIL)

National Multi Commodity Exchange of India Limited (NMCEIL) is the first

de-mutualized, Electronic Multi-Commodity Exchange in India. On 25thJuly, 2001, it was granted approval by the Government to organise

trading in the edible oil complex. It has operationalised from November

26, 2002. It is being supported by Central Warehousing Corporation Ltd.,

Gujarat State Agricultural Marketing Board and Neptune Overseas

Limited.

Commodity exchange in India plays an important role where the

prices of any commodity are not fixed, in an organized way. Earlier only
http://finance.indiamart.com/markets/commodity/nmceil.htmlhttp://finance.indiamart.com/markets/commodity/nmceil.html


31/55

the buyer of produce and its seller in the market judged upon the prices.

Others never had a say. Today, commodity exchanges are purely

speculative in nature. Before discovering the price, they reach to the

producers, end-users, and even the retail investors, at a grassroots level.It brings a price transparency and risk management in the vital market.

A big difference between a typical auction, where a single auctioneer

announces the bids and the Exchange is that people are not only

competing to buy but also to sell. By Exchange rules and by law, no one

can bid under a higher bid, and no one can offer to sell higher than

someone elses lower offer. That keeps the market as efficient as

possible, and keeps the traders on their toes to make sure no one gets

the purchase or sale before they do.

Market Timings.


32/55

Trading on the commodities segment takes place on all days of theweek and on Saturday up to 2 p.m. (except Sundays and holidaysdeclared by the exchange in advance)

The market timings of the commodities segment are:

Normal market open : 10.00 a.m.Normal market close : 11:30 p.m.

The London Market Exchange [LME] stock starts from 2.30 p.m. andcloses at 8.30 p.m. and the U.S. Market starts at 7.00 p.m. andcloses at 11.30 p.m.

What Is Commodity.???


33/55

Commodities are raw materials used to create the products

consumers buy, from food to furniture to gasoline. Commodities include

agricultural products such as wheat and cattle, energy products such as

oil and gasoline, and metals such as gold, silver and aluminum. There arealso soft commodities, or those that cannot be stored for long periods of

time. Soft commodities are sugar, cotton, cocoa and coffee. People have

started with a small account and in a short period of time built their

account up to the point that they have been able to quit their jobs and

trade commodities full-time providing themselves with a very

comfortable living.

Commodities have also evolved as an asset class with the

development of commodity futures indexes and, more recently, the

introduction of investment vehicles that track commodity indexes.

Commodities are real assets, unlike stocks and bonds, which are financial

assets. Commodities, therefore, tend to react to changing

economic conditions in different ways than traditional financial assets. Forexample, commodities are one of the few asset classes that tend to

benefit from rising inflation. As demand for goods and services increases,

the price of those goods and services usually goes up as well, as do the

prices of the commodities used to produce those goods and services.

Because commodity prices usually rise when inflation is accelerating,

investing in commodities may provide portfolios with a hedge against

inflation.

Commodity Traded In India


34/55

Commodity study

AluminiumAreca nut (Betel nut)BarleyCardamomCashewCastor and its derivativesChickpea (Chana)ChilliCoalCoconutCoffeeCopper CottonCrude oil

Crude palm oilEthanolFurnace oilGoldGroundnutGuar (Cluster bean)Gur Jeera (Cumin seed)JuteLentil (Masur)

MaizeMentha oilMustard seed/Rapeseed

Natural gas NickelPepper PlatinumPolypropylenePotatoRice

Rubber Sesame seedSilver Sorghum (Jowar)Soybean (Soya bean)SteelSugar Tur (Pigeon pea)TurmericWheatUradYellow peasZinc
http://www.crnindia.com/commodity/aluminium.htmlhttp://www.crnindia.com/commodity/arecanut.htmlhttp://www.crnindia.com/commodity/barley.htmlhttp://www.crnindia.com/commodity/cardamom.htmlhttp://www.crnindia.com/commodity/cashew.htmlhttp://www.crnindia.com/commodity/castor.htmlhttp://www.crnindia.com/commodity/chickpea.htmlhttp://www.crnindia.com/commodity/chilli.htmlhttp://www.crnindia.com/commodity/coal.htmlhttp://www.crnindia.com/commodity/coconut.htmlhttp://www.crnindia.com/commodity/coffee.htmlhttp://www.crnindia.com/commodity/copper.htmlhttp://www.crnindia.com/commodity/cotton.htmlhttp://www.crnindia.com/commodity/crudeoil.htmlhttp://www.crnindia.com/commodity/palmoil.htmlhttp://www.crnindia.com/commodity/ethanol.htmlhttp://www.crnindia.com/commodity/foil.htmlhttp://www.crnindia.com/commodity/gold.htmlhttp://www.crnindia.com/commodity/groundnut.htmlhttp://www.crnindia.com/commodity/guar.htmlhttp://www.crnindia.com/commodity/gur.htmlhttp://www.crnindia.com/commodity/jeera.htmlhttp://www.crnindia.com/commodity/jute.htmlhttp://www.crnindia.com/commodity/masur.htmlhttp://www.crnindia.com/commodity/maize.htmlhttp://www.crnindia.com/commodity/menthaoil.htmlhttp://www.crnindia.com/commodity/MR.htmlhttp://www.crnindia.com/commodity/ngas.htmlhttp://www.crnindia.com/commodity/nickel.htmlhttp://www.crnindia.com/commodity/pepper.htmlhttp://www.crnindia.com/commodity/platinum.htmlhttp://www.crnindia.com/commodity/pp.htmlhttp://www.crnindia.com/commodity/potato.htmlhttp://www.crnindia.com/commodity/rice.htmlhttp://www.crnindia.com/commodity/rubber.htmlhttp://www.crnindia.com/commodity/sseed.htmlhttp://www.crnindia.com/commodity/silver.htmlhttp://www.crnindia.com/commodity/sorghum.htmlhttp://www.crnindia.com/commodity/soybean.htmlhttp://www.crnindia.com/commodity/steel.htmlhttp://www.crnindia.com/commodity/sugar.htmlhttp://www.crnindia.com/commodity/tur.htmlhttp://www.crnindia.com/commodity/turmeric.htmlhttp://www.crnindia.com/commodity/wheat.htmlhttp://www.crnindia.com/commodity/urad.htmlhttp://www.crnindia.com/commodity/ypea.htmlhttp://www.crnindia.com/commodity/zinc.htmlhttp://www.crnindia.com/commodity/aluminium.htmlhttp://www.crnindia.com/commodity/arecanut.htmlhttp://www.crnindia.com/commodity/barley.htmlhttp://www.crnindia.com/commodity/cardamom.htmlhttp://www.crnindia.com/commodity/cashew.htmlhttp://www.crnindia.com/commodity/castor.htmlhttp://www.crnindia.com/commodity/chickpea.htmlhttp://www.crnindia.com/commodity/chilli.htmlhttp://www.crnindia.com/commodity/coal.htmlhttp://www.crnindia.com/commodity/coconut.htmlhttp://www.crnindia.com/commodity/coffee.htmlhttp://www.crnindia.com/commodity/copper.htmlhttp://www.crnindia.com/commodity/cotton.htmlhttp://www.crnindia.com/commodity/crudeoil.htmlhttp://www.crnindia.com/commodity/palmoil.htmlhttp://www.crnindia.com/commodity/ethanol.htmlhttp://www.crnindia.com/commodity/foil.htmlhttp://www.crnindia.com/commodity/gold.htmlhttp://www.crnindia.com/commodity/groundnut.htmlhttp://www.crnindia.com/commodity/guar.htmlhttp://www.crnindia.com/commodity/gur.htmlhttp://www.crnindia.com/commodity/jeera.htmlhttp://www.crnindia.com/commodity/jute.htmlhttp://www.crnindia.com/commodity/masur.htmlhttp://www.crnindia.com/commodity/maize.htmlhttp://www.crnindia.com/commodity/menthaoil.htmlhttp://www.crnindia.com/commodity/MR.htmlhttp://www.crnindia.com/commodity/ngas.htmlhttp://www.crnindia.com/commodity/nickel.htmlhttp://www.crnindia.com/commodity/pepper.htmlhttp://www.crnindia.com/commodity/platinum.htmlhttp://www.crnindia.com/commodity/pp.htmlhttp://www.crnindia.com/commodity/potato.htmlhttp://www.crnindia.com/commodity/rice.htmlhttp://www.crnindia.com/commodity/rubber.htmlhttp://www.crnindia.com/commodity/sseed.htmlhttp://www.crnindia.com/commodity/silver.htmlhttp://www.crnindia.com/commodity/sorghum.htmlhttp://www.crnindia.com/commodity/soybean.htmlhttp://www.crnindia.com/commodity/steel.htmlhttp://www.crnindia.com/commodity/sugar.htmlhttp://www.crnindia.com/commodity/tur.htmlhttp://www.crnindia.com/commodity/turmeric.htmlhttp://www.crnindia.com/commodity/wheat.htmlhttp://www.crnindia.com/commodity/urad.htmlhttp://www.crnindia.com/commodity/ypea.htmlhttp://www.crnindia.com/commodity/zinc.html


35/55

Precious Metal...

GoldGold is the oldest precious metal known to man. Therefore, it is a

timely subject for several reasons. It is the opinion of the more objective

market experts that the traditional investment vehicles of stocks and

bonds are in the areas of their all-time highs and may be due for a severe

correction. To fully appreciate why 8,000 years of experience say gold is

forever", we should review why the world reveres what England most

famous economist, John Maynard Keynes, has cynically called the

"barbarous relic."

Why gold is "good as gold" is an intriguing question. However, we


36/55

think that the more pragmatic ancient Egyptians were perhaps more

accurate in observing that gold's value was a function of its pleasing

physical characteristics and its scarcity.

Gold is primarily a monetary asset and partly a commodity.

More than two thirds of gold's total accumulated holdings account

as 'value for investment' with central bank reserves, private players

and high-carat Jewellery.

Less than one third of gold's total accumulated holdings is as a

'commodity' for Jewellery in Western markets and usage in industry. The Gold market is highly liquid and gold held by central banks,

other major institutions and retail Jewellery keep coming back to the

market.

Due to large stocks of Gold as against its demand, it is argued that

the core driver of the real price of gold is stock equilibrium rather

than flow equilibrium.

Economic forces that determine the price of gold are different from,

and in many cases opposed to the forces that influence most financial

assets.

South Africa is the world's largest gold producer with 394 tons in

2001, followed by US and Australia.

India is the world's largest gold consumer with an annual demand of 800 tons.

World Gold Markets

London as the great clearing house


37/55

New York as the home of futures trading

Zurich as a physical turntable

Istanbul, Dubai, Singapore and Hong Kong as doorways to important

consuming regions Tokyo where TOCOM sets the mood of Japan

Mumbai under India's liberalized gold regime.

Indian Gold Market

Gold is valued in India as a savings and investment vehicle and is thesecond preferred investment after bank deposits.

India is the world's largest consumer of gold in Jewellery as

investment.

In July 1997 the RBI authorized the commercial banks to import gold

for sale or loan to jewelers and exporters. At present, 13 banks are

active in the import of gold. This reduced the disparity between international and domestic prices

of gold from 57 percent during 1986 to 1991 to 8.5 percent in 2001.

The gold hoarding tendency is well ingrained in Indian society.

Domestic consumption is dictated by monsoon, harvest and marriage

season. Indian Jewellery off take is sensitive to price increases and

even more so to volatility.

In the cities gold is facing competition from the stock market and a

wide range of consumer goods.


38/55

Facilities for refining, assaying, making them into standard bars in

India, as compared to the rest of the world, are insignificant, both

qualitatively and quantitatively.

Market Moving Factors

Above ground supply from sales by central banks, reclaimed scrap

and official gold loans

Producer / miner hedging interest

World macro-economic factors - US Dollar, Interest rate

Comparative returns on stock markets Domestic demand based on monsoon and agricultural output

Frequency Dist. of Gold London Fixing Volatility from 1995 till date

Percentage Change > 5% 2 - 5 % < 2%

Daily

Number of times 4 54 2147

Percentage times 0.2 2.4 97.4

Weekly

Number of times 3 62 376

Percentage times 0.7 14.1 85.3


39/55

India in World Gold Industry

(Rounded Figures) India (In Tons) World (In Tons) % Share

Total Stocks 13000 145000 9

Central Bank holding 400 28000 1.4

Annual Production 2 2600 0.08

Annual Recycling 100-300 1100-1200 13

Annual Demand 800 3700 22

Annual Imports 600 --- ---

Annual Exports 60 --- ---


40/55


41/55

Silver:

The price of silver like that of other commodities is dedicated by

force of demand & supply.

Besides a host of social economic political factor have powerful

bearing on Silver prices.

As in case of gold prices, political tensions the threat affects the

price of Silver too. SILVER is a lot of 30kg. And we earn Rs. 30 if it

increases 1 Rs..


42/55


43/55

Gujarat accounts for 86% of India's castor seed production followed

by Andhra Pradesh and Rajasthan. Castor is mainly grown in

Mehsana, Banaskantha and Saurashtra/Kutch regions of Gujarat and

Nalgonda and Mahboobnagar districts of Andhra Pradesh. Castor is a Kharif crop. The sowing season of castor is from July to

October and the harvesting season is from October to April.

The annual domestic consumption of castor oil in India is only about

80,000-1, 00,000 tons. Of this, the soap industry consumes about

25,000 tons, the paint and allied industries 35,000 tons and the

lubricant and derivatives industry 20,000 tons.

India annually exports around 2.0 - 2.4 lakh tons of commercial

castor oil. From India castor oil is exported in two forms - First Special

Grade and Castor Oil Commercial through mainly Kandla port. There

is a large scope for improving India's earning from castor by

converting the castor oil to various derivatives.

A considerable quantity of the castor oil is also used in adulteration

of edible oils like groundnut oil due to price differential.

Major Trading Centers.

The major castor oil markets in Gujarat are Rajkot, Ahmedabad, Gondal,

Gadwal, Bhabar, and in Andhra Pradesh are Jedcherla and Yemignoor.

WorldScenarioIndia is the leading producer of castor oil in the world, followed by China

and Brazil with 0.8 and 0.4 lakh tons respectively. The present annual

world trade in castor oil is estimated at about 2.0 - 2.50 lakh tons. The

major importers of castor oil in the world market are European Union, US


44/55

and Japan. The world demand for castor oil is estimated to be growing at

the rate of about 3 to 5 % per annum. Both Brazil and China have

experienced a steady increase in their domestic castor oil consumption in

the recent years and thus utilize almost their entire production. Indiaconsumes only a quarter of its castor oil production and exports the rest.

Market Influencing Factors

Variations in castor seed domestic acreage based on yield and price

realization.

Crop development based on monsoon progress in key growing

regions.

Chinese and Brazilian crop size.

Comparative price with other vegetable oils in the domestic market.

Upcountry demand of castor oil from the major cities, Export demand

of castor oil from US, Europe and Japan.

The castor seed price tends to firm up during the planting period and

eases down during the harvesting period. Prices tend to show inter-

seasonal variation of almost Rs 200 - Rs 350 per quintal.

Castor seed growers and crushers hoard the commodity before

selling in expectation of better prices. Castor oil too can be kept in

containers without spoilage for long period.

OTHER METALS


45/55

ZINC: Changes in LME warehouse stock if stock comes up worries goes

down LME stocks is updated at 2:30 according to Indian time from

Mon to Fri.

A GDP Rate change in the country where copper is most use, likeLondon, India, China.

Its also demands on economic growth and demand in industrial area. Price of other metals. Interest of funds. Zinc is a lot of 5MT (5000kg) we earn Rs. 5000 if it increases 1 Point. In normal trading day there is a movement of 6 to 7 Points. So we can earn 30000 to 35000 if right position we made. Margin 7 % of 150 * 5000=750000. 750000*7%= 5250

JEERA: Delhi, Jaipur and Rajkot are the major terminal markets for Jeera,

from where it moves to other consumption centers of the country. The prices display high volatility due to its seasonal nature and

widespread demand within and outside the country. Weather at the production centers, pests and diseases have an

influence on the production of spices.


46/55

The market is not perfectly organized and this influences the

information flow.

JEERA is a lot of 3MT. And we earn Rs. 30 if it increases 1 Point. In normal day there is movement of 250 300 Points. We may earn 250 to 300 * 30= 7500 to 9000 If right position we make. Margin 5% that is 14500*30=435000*10% = 43500.

Comparison of MCX & NCDEX

Everything you need to know about our company,its people and associates

Overview


47/55

MCX is an independent and de-mutualized multi commodity

exchange. It was inaugurated on November 10, 2003 by Mr. Mukesh

Ambani, Chairman and Managing Director, Reliance Industries Ltd.; and

has permanent recognition from the Government of India for facilitatingonline trading, clearing and settlement operations for commodities

futures market across the country. Today, MCX features amongst the

world's top three bullion exchanges and top four energy exchanges.

MCX offers a wide spectrum of opportunities to a large cross section of

participants including producers/ processors, traders, corporate, regional

trading centre, importers, exporters, co-operatives and industry

associations amongst others. Headquartered in the financial capital of

India, Mumbai, MCX is led by an expert management team with deep

domain knowledge of the commodities futures market. Presently, the

average daily turnover of MCX is around USD1.55 bn (Rs.7, 000 crore -

April 2006), with a record peak turnover of USD3.98 bn (Rs.17, 987

crore) on April 20, 2006. In the first calendar quarter of 2006, MCX holds

more than 55% market share of the total trading volume of all thedomestic commodity exchanges. The exchange has also affected large

deliveries in domestic commodities, signifying the efficiency of price

discovery. Being a nation-wide commodity exchange having state-of-the-

art infrastructure, offering multiple commodities for trading with wide

reach and penetration, MCX is well placed to tap the vast potential poised

by the commodities market.

Key shareholders

Financial Technologies (I) Ltd., State Bank of India and it's associates,

National Bank for Agriculture and Rural Development (NABARD), National


48/55

Stock Exchange of India Ltd. (NSE), Fid Fund (Mauritius) Ltd. - an

affiliate of Fidelity International, Corporation Bank, Union Bank of India,

Canara Bank, Bank of India, Bank of Baroda , HDFC Bank, SBI Life

Insurance Co. Ltd., Merrill Lynch and Citigroup

NCDEX

National Commodity & Derivatives Exchange Limited (NCDEX)

is a professionally managed online multi commodity exchange promoted

by ICICI Bank Limited (ICICI Bank), Life Insurance Corporation of India


49/55

(LIC), National Bank for Agriculture and Rural Development (NABARD)

and National Stock Exchange of India Limited (NSE). NCDEX is the only

commodity exchange in the country promoted by national level

institutions. This unique parentage enables it to offer a bouquet of benefits, which are currently in short supply in the commodity markets.

The four institutional promoters of NCDEX are prominent players in their

respective fields and bring with them institutional building experience,

trust, nationwide reach, technology and risk management skills.

NCDEX is a public limited company incorporated on April 23, 2003 under

the Companies Act, 1956. It obtained its Certificate for Commencementof Business on May 9, 2003. It has commenced its operations on

December 15, 2003.

NCDEX is a technology driven de-mutualized commodity exchange with

an independent Board of Directors and professionals not having any

vested interest in commodity markets. It is committed to provide a

world-class commodity exchange platform for market participants to

trade in a wide spectrum of commodity derivatives driven by best global

practices, professionalism and transparency.

NCDEX is regulated by Forward Market Commission in respect of futures

trading in commodities. Besides, NCDEX is subjected to various laws of

the land like the Companies Act, Stamp Act, Contracts Act, Forward

Commission (Regulation) Act and various other legislations, which

impinge on its working. NCDEX is located in Mumbai and offers facilities

to its members in about 91 cities throughout India. The reach will

gradually be expanded to other cities.


50/55

NCDEX currently facilitates trading of ten commodities - Gold, Silver, Soy

Bean, Refined Soy Bean Oil, Rapeseed-Mustard Seed, Expeller Rapeseed-

Mustard Seed Oil, RBD Palmolein, Crude Palm Oil and Cotton - medium

and long staple varieties. At subsequent phases trading in morecommodities would be facilitated.

Highlights

NCDEX begins online commodities trading on December 15, 2003 NCDEX flags off futures in 10 commodities on December 16, 2003 NCDEX has tied up with has tied up with HDFC Bank, ICICI Bank

and Bank of India (BoI) for funding around 200 cotton farmers in

Gujarat. NCDEX has planned a pilot project for TamilNadu cotton growers on

price discovery through futures/options trade in commodity. PNB gets RBI nod for 8% stake in NCDEX Three more FIIs apply for trading at NCDEX platform

Evening trading begins at NCDEX from February 2004.

Tend Analysis at MCX


51/55

Commodityname Expiry date

CurrentClosing

Yesterday'sClosing

PresentTrend

Datewhen thetrendchanged

Rate atwhich thetrendchanged

Aluminium(Dec) 31/12/2007 95.55 95.9 Down

3/12/2007 96.35

Aluminium(Jan) 31/01/2008 97.05 97.35 Up

12/12/2007 97.05

Copper(Feb) 29/02/2008 266 270 Up

11/12/2007 270.00

Copper(April) 30/04/2008 272 276.25 Down

6/12/2007 269.90

Gold (Feb) 5/2/2008 10337 10208 Up 7/12/200710186.00

Gold (April) 5/4/2008 10402 10276 Up 7/12/200710262.00

Gold (June) 5/6/2008 10478 10435 Up 8/12/200710378.00

Silver(March) 5/3/2008 19439 19154 Up

7/12/2007

19132.00

Silver (May) 5/5/2008 19743 19471 Up 8/12/200719471.00

Silver (July) 5/7/2008 19946 20128 Up8/12/2007

19935.00

Zinc (Dec) 31/12/2007 94.9 96.45 Down 6/12/2007 95.70

Zinc (Jan) 31/01/2008 95.95 97.65 Down 6/12/2007 96.90

Zinc (Feb) 29/02/2008 96.6 98.7 Down - -

Nickel (Dec) 31/12/2007 1040.5 1074 Down 17/11/2007 1263.00

Nickel (Jan) 31/01/2008 1051 1067.5 Up12/12/2007 1051.00

N gas (Dec) 20/12/2007 279.00 282.90 Down 19/11/2007 324.70

N gas (Jan) 18/01/2008 293.5 284 Down 19/11/2007 328.4

N gas (Feb) 20/02/2008 293.5 284 Down 19/11/20 328.4


52/55

07Commodity Trend at NCDEX

Commodity

nameExpiry date Current

Closing

Yesterday's

Closing

Present

Trend

Datewhen the

trendchanged

Rate atwhich the

trendchanged

Brent crude(Dec) 14/12/2007 3599 3495.5 Up

12/12/2007 3599.00

Brent crude(Jan) 16/01/2008 3574.5 3510 Up

12/12/2007 3574.50

Brent crude(Feb) 14/02/2008 3575 3505 Up

12/12/2007 3575.00

Silver (Dec) 20/12/2007 18766 18556 Up 8/12/2007 18556.00

Silver (Jan) 18/01/2008 18990 18743 Up 8/12/2007 18743.00

Silver (Feb) 20/02/2008 19100 19163 Up 8/12/2007 18950

Silver (March) 20/03/2008 18950 18950 Down - -

Trend Analysis at NCDEX

Commodityname

Expirydate

Today'sclosing

Yesterday'sclosing Trend

Date whenthe trendchanged

Rate atwhich thetrendchanged

Channa (Dec) 20/12/2007 2193.002,199

.00 Down20/11/2007 2359

Channa (Jan) 18/01/2008 2205.002,212

.00 Down21/11/2007 2351

Channa (Feb) 20/02/2008 2192.002,202

.00 Down22/11/2007 2269

Channa(March)

20/03/2008 2183.00

2,181.00 Down

23/11/2007 2232

Chana (April) 18/04/2008 2224.002,217

.00 Down23/11/2007 2253

Channa (May) 20/05/2008 2260.002,250

.00 Down - -


53/55

Castorseed(Dec)

20/12/2007 420.20

419.00 Down 10/12/07 420

Castorseed(Jan)

18/01/2008 414.70

413.30 Down 7/12/07 419

Castorseed(Feb) 20/02/2008 410.70 409.90 Down 8/12/07 418

Castorseed(March)

20/03/2008 409.00

407.50 Down 7/12/07 412

Chilli (Feb) 20/02/2008 3558.003,541

.00 Up 8/12/07 3541

Chilli (March) 20/03/2008 3552.003,474

.00 Up 8/12/07 3475

Chilli (April) 18/04/2008 3564.003,477

.00 Up 8/12/07 3481

Guarseed(Dec)

20/12/2007 1629.00

1,643.00 Down 5/12/07 1647

Guarseed(Jan)

18/01/2008 1676.00

1,691.00 Down 5/12/07 1693

Guarseed(March)

20/03/2008 1739.00

1,763.00 Down 5/12/07 1775

GuarGum(Dec)

20/12/2007 4090.00

4,130.00 Down 5/12/07 1192

GuarGum(Jan) 18/01/2008 4178.00 4,223.00 Down 5/12/07 1239

GuarGum(March)

20/03/2008 4341.00

4,394.00 Down 6/12/07 4386

Gur (Dec) 20/12/2007 381.00381

.00 Down28/11/2007 393

Gur (Jan) 18/01/2008 420.40420

.20 Up 11/12/07 420

Gur (March) 20/03/2008 436.00437

.00 Up 8/12/07 440

Jeera (Dec) 20/12/2007 9455.009,482

.00 Down 11/12/07 9482

Jeera (Jan) 18/01/2008 9830.009,851

.00 Up 7/12/07 9783

Jeera (Feb) 20/02/2008 9745.009,751

.00 Down 11/12/07 9751


54/55

Jeera (March) 20/03/2008 9861.009,919

.00 Down - 1145

Maize (Dec) 20/12/2007 738.00735

.50 Down30/11/2007 739

Maize (Jan) 18/01/2008 756.00 754.50 Up 12/12/07 756

Maize (Feb) 20/02/2008 777.00774

.50 Up 12/12/07 777

Maize (March) 20/03/2008 784.50787

.00 Up 12/12/07 785

Maize(April) 18/04/2008 803.50801

.00 Down - -

Mentha (Dec) 20/12/2007 439.00435

.80 Up 12/12/07 439

Mentha (Jan) 18/01/2008 447.50444

.20 Up 12/12/07 448

Mentha (Feb) 20/02/2008 458.00462

.00 Down 6/12/07 488

Mentha(March)

20/03/2008 507.70

507.40 Down 10/12/07 507

Pepper (Dec) 20/12/2007 13070.0013,075

.00 Down 7/12/07 12867

Pepper (Jan) 18/01/2008 13296.00 13,295.00 Down 7/12/07 13115

Pepper (Feb) 20/02/2008 13115.0013,105

.00 Down 7/12/07 13317

Pepper(March)

20/03/2008 13314.00

13,291.00 Down 7/12/07 13440

Pepper (April) 18/04/2008 13500.0013,502

.00 Down 7/12/07 13626

Pepper (May) 20/06/2008 13700.0013,736

.00 Down 7/12/07 13921

Ref Soy (Dec) 20/12/2007 526.50527

.20 Down 3/12/07 532

Ref Soy (Jan) 18/01/2008 532.60534

.15 Down 3/12/07 539

Ref Soy (Feb) 20/02/2008 536.50539

.50 Down 3/12/07 545


55/55

Sugar (Dec) 20/12/2007 1281.001,295

.00 Down 1/12/07 1309

Sugar (Jan) 18/01/2008 1305.001,285

.00 Down 4/12/07 1308

Sugar (Feb) 20/02/2008 1259.00 1,264.00 Up 12/12/07 1259

Sugar (March) 20/03/2008 1264.001,270

.00 Up 12/12/07 1264

Turmeric(Dec)

20/12/2007 2321.00

2,318.00 Down 10/12/07 2321

Turmeric(April)

18/04/2008 2620.00

2,593.00 Down 10/12/07 2625

Bibliography To complete any project we need to be relying on two types of data:

1) Primary Data.

2) Secondary Data.

For my management thesis I visited different broking companies...

Primary Data: - Angel Broking

M.D Investment

Secondary Data: - www.google.com

www.mcx.com

www.ncdex.com
http://www.google.com/http://www.mcx.com/http://www.ncdex.com/http://www.google.com/http://www.mcx.com/http://www.ncdex.com/

interim report ishwar

Documents