India May Lift Wheat, Rice Futures Ban on Record Crop

By Thomas Kutty Abraham

Jan. 20 (Bloomberg) -- India, the world’s second-largest grower of rice and wheat, may next month lift a two-year ban on futures trading in the cereals as record harvests cool domestic food prices.

The Forward Markets Commission, the market regulator, will write to the federal government seeking an end to the curbs by tomorrow, Chairman B.C. Khatua said in an interview yesterday.

Resuming trading may help the National Commodity & Derivatives Exchange Ltd., partly owned by Goldman Sachs Group Inc., to stem a decline in the turnover of agricultural goods. Prime Minister Manmohan Singh’s government in December lifted a seven-month ban on trading rubber, soybean oil, potatoes and chickpeas after inflation halved from a 16-year high in August.

“The scrapping of the ban will go a long way in restoring confidence in the commodities market that was badly hurt by the restrictions,” said Unupom Kausik, chief business officer at the National Exchange. “Volumes will certainly go up.”

Forecasts of record rice and wheat harvests this year may help quell protests by political parties against futures trading in wheat and rice, Khatua said. Opposition political groups had blamed speculation in farm commodities for high food prices.

“The prospects for the winter crop are very good and the resumption in trading will not go against the producers or the consumers,” Khatua said.

Wheat output may exceed last year’s 78.4 million metric tons and production of monsoon-sown rice may reach 83.3 million tons, both records, according to the farm ministry. The winter-sown rice harvest may rise 3 percent to 14 million tons, it said.

Crop Arrival

“Ideally, we would like to resume trading before the winter crop arrives in the market,” toward the end of February, Khatua said. “The market doesn’t trade any major cereals at the moment and wheat and rice would be good additions.”

Monsoon-sown rice contributes more than 85 percent of the country’s production of the cereal. The winter crop, planted in October, makes up the remainder.

Turnover in farm commodity futures dropped by a third to 4.4 trillion rupees ($90 billion) in the nine months ended December because of the ban. The restrictions on soybean oil, natural rubber, potatoes and chickpeas were imposed in May and extended in September by three months to cool inflation.

India’s inflation rate has slowed to an 11-month low, helped by the slump in prices of crude oil and other commodities.

Rice has tumbled 46 percent from a record $25.07 per 100 pounds last April, while wheat has plunged 57 percent from its peak of $13.495 on Feb. 27.

Turnover of all commodities, including bullion, may reach 47 trillion rupees in the year to March, up from 36.8 trillion rupees in the nine months ended Dec. 31, Khatua said.

Domestic traders, producers and consuming companies are the main participants in India’s commodity exchanges, compared with the 13 million people in the country who trade stocks. Overseas funds aren’t allowed to trade commodity futures.

To contact the reporter on this story: Thomas Kutty Abraham in Mumbai at tabraham4@bloomberg.net.