The Indian Government has always been skeptical about futures on agricultural commodities due to concerns of inflation. The Government had banned futures of Non-Basmati Paddy and Wheat back in 2007. However, the Indian Commodity Exchange (ICEX) board received an approval from Securities and Exchange Board of India (SEBI) to launch 1121 Basmati futures contracts.
1121 Basmati Variety Futures
India is the biggest producer of basmati rice in the world. The 2018-19 season witnessed one of the lowest outputs of basmati rice at 5.31 million tonnes. Output is down by almost 6% from 2017-18’s 5.64 million tons. However, low basmati output has been attributed to increase in minimum support price for non-basmati paddy by the Government.
Estimated 4.50 Million Tonnes (80% of ouput) of Basmati Rice is exported from India. In addition, future contracts on Basmati Pusa 1121 would be helpful to the industry in hedging price risk on the domestic exchange.
Volatility in Prices
Traders, Exporters and Rice Millers who deal in Basmati rice usually have a stocking period of 6 months every year. Price volatility affects the crop drastically throughout the year.
Prices of 1121 Basmati Rice remain volatile and vulnerable mainly attributed to policy changes in Iran Government. These sudden price changes puts the whole industry in risk. Many rice millers went bankrupt due to price volatility in recent years.
Future Contracts will help basmati rice industry to hedge this risk and create a price transparency in the market
Currently, the stocks of basmati are very low. Basmati Pusa 1121 variety harvest is in the month of November. We predict that the future contracts to launch close to new harvest season.