Trade with Commodities: Govt bans sugar futures till Dec

Tuesday, May 26, 2009

Govt bans sugar futures till Dec

Clients Will Get To Square Off Existing Positions; Move Aimed At Checking Price Spurt

BARELY a week since trading in wheat futures resumed after a gap of more than two years, commodity exchange regulator Forward Markets Commission (FMC) on Tuesday decided to temporarily suspend permission given to exchanges to launch new sugar contracts until December 31.
    The ongoing contracts in the commodity will continue to be traded until their expiry. However, no fresh trading positions can be initiated in them. Clients will only be able to square off their existing positions. This means ultimately volumes will drop to zero. The move could hurt many traders in sugar futures.
    Sources in the UPA told ET that the decision to suspend sugar futures was taken at the highest level. "The issue was dealt with at the PM's level," a senior political functionary, requesting anonymity, said. What he meant was that the Union agriculture minister Sharad Pawar was informed of the decision only at a later stage. The decision to suspend sugar futures came a day after Mr Pawar told the media that the government was not in a hurry to lift the ban on non-basmati rice exports.
    Confirming the suspension, Rajeev Agarwal, member, FMC, said: "Considering the supply-demand scenario and the inflationary expectations in sugar, the regulator has taken this step as an abundant caution. We have not suspended current contracts, but no new positions will be allowed to be taken in them. However, we have suspended permission for all futures contracts in sugar that have yet to be launched till December 31."
    Sugar prices have steadily risen on account of an estimated shortage in the current season's production. Against a production of 26.3 million tonnes last year, output this year is estimated at just 14.7 mt. Sugar production has been estimated lower because of lower availability of sugarcane, its diversion to competing sectors such as gur and khandsari and lower recovery. According to the latest government estimate, sugarcane production in the country may go down significantly to 289.2 mt in 2008-09 from 348.2 mt last year.
    "Last year, when there was surplus production, the government exported around 4.9 mt of sugar, which, after consumption, left it with a closing stock of 8 mt against 9.2 mt in the previous year. It is patently unfair on the part of anyone to blame the futures markets for the rise in prices, which reflect the underlying supply-demand situation," said a futures broker.
    Spot price data on NCDEX, the exchange that will be most affected by the suspension of sugar futures trading, show that price of the sweetener is up by over 50% at Rs 23.95 a kg.
    "The announcement could affect the volumes on NCDEX substantially as this a third instance (after grains and pulses) that the market regulator has banned an agri-commodity after a substantial rise in prices," said Atul Shah, Head (commodities), Emkay Commtrade.