Impact of Futures Trading on Commodity Prices

1. Impact of Futures Trading on Commodity Prices Golaka C. Nath and T. Lingareddy Vice President and Deputy Manager Research and Surveillance CCIL, Mumbai

2. Objective • To study the impact of futures trading on agricultural commodity prices.

3. Methodology • Simple percentage variations, correlations, • Granger Causality Test • Linear Regression

4. Trends in volumes • Only three commodities have contributed for about 65 per cent of agril. volumes • Gram and urad dominated the volumes among food grains in 2005 and 2006 Source: Market Review, FMC (www.fmc.gov.in), NCDEX, MCX

6. Descriptive Statistics Jan 2001- Aug 2007 Correlation Coefficients of Price Changes ch: Indicates change; * Indicates significant at one per cent level

7. Results of regression for urad * and ** indicates significant at 1% and 5% level

8. Regression results for gram

9. Granger causality results for price changes Granger causality results for price volatilities ** and *** indicates significant at 5% and 10% level

11. Volatilities in Prices

12. Conclusions • There was a significant increase in spot urad prices during the period of futures trading • Although gram prices too have posted a moderate rise in the post-futures trading period, the impact was not found statistically significant. • The average price increase and volatilities in urad, gram and total pulses have gone up during the period of futures trading

13. Thank you