Future's not so bright for guar seed commission agents
Even as the proponents and opponents of guar seed futures trade up the ante, a definitive change in the trading pattern has become obvious.
By Ram Sahgal, TNN |
MUMBAI: Even as the proponents and opponents of guar seed futures trade up the ante, a definitive change in the trading pattern has become obvious.
The local arthiya or commission agent finds his role dwindling at the expense of the financier, anyone with an investing interest, who buys from the farmer and offloads on the exchange warehouses. The financier’s aim is to earn vyaj badla — benefit from cash and carry arbitrage. The farmer’s gain is that he gets interest-free cash upfront.
Before the exchange platforms became evident, a farmer in need of funds would park his goods with the arthiya who, after deducting his margin, would lend him 75-80% of the value of goods. With this loan, the farmer would be charged interest and storage costs until such time his goods were disposed of by the arthiya.
With the entry of exchanges into the eco system, the arthiya’s role has been reduced to acting on behalf of the financier, whereby he mediates between farmer and financier. He takes money from the financier, pays the farmer, whose goods are sold by auction, and then transfers the produce to the financier who sells it on the exchange.
“The role of the commission agent in guar seed has come down what with the merchandise moving straight into the exchange warehouses,” says Pukhraj Chopra, a commission agent from Bikaner, adding “While storage capacities are not even 5 lakh bags, volumes traded on the exchanges are many times higher”.
ADVERTISEMENT
According to Sandeep Sabharwal of Sohanlal & Co, based in Delhi, “Where he used to earn interest of 21% per annum in the past and another 18% as storage and incidental expenses, the arthiya’s commission has now come down to just between 0.4-1% depending on the structure of the deal.” The MCX polled spot price of guar seed on the Jodhpur mandi was Rs 1,975 per quintal, while the December contract’s last traded price (LTP) was Rs 2,043. This has presented financiers with a vyaj badla where, according to Mr Sabharwal, they can earn a net interest of 1.5-1.6% per month per quintal after deducting the cost of carry, lab charges and commission agent’s fee.
“We have reports from the market which show that the income realisation of farmers has increased in guar seed because of utilisation of price signals emanating from the futures market,” said Rajeev Agarwal, member Forward Markets Commission.
While NCDEX is the predominant leader in guarseed trade, with total stocks at 13,559 million tonnes, officials from MCX said with volumes exceeding Rs 183 crore on December 5, the market share of MCX has gone up from less than 1.5% of futures trade up to October 2006 to 20% share in guar trading. Total stocks at MCX are at 4,200 tonnes.
Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
Bookmark or read stories offline -
Download ET Markets APP
Download ET Markets APP
ADVERTISEMENT
