Market efficiency and price risk management of agricultural commodity prices in India

Purpose Market efficiency leads to transparent and fair price discovery of commodity markets, thus enhancing the value chain for competitive benefit. The purpose of this paper is to investigate the market efficiency of Indian agricultural commodities at spot, futures and mandi markets apart from exploring price risk management in these markets. Design/methodology/approach This study uses Johansen co-integration, vector error correction model and granger causality for analyzing market efficiency of the nine most liquid agricultural commodities across three markets, namely, spot, futures and mandi. All these nine commodities are traded on National Commodity and Derivatives Exchange. Findings The statistical results indicate price discovery exists in the mandi market and spot market leading to futures prices. Mandi price returns are seen to negatively influence futures returns in the case of cotton seed, guar seed and spot returns in the case of jeera, coriander and chana. For castor seed, the three markets are seen to have no long run relationship. The results of Granger causality reveal short run relationship between all the three markets in the case of soybean seed and coriander. In these commodities, prices in all three markets are capable of predicting the prices in the other markets. For the case of cottonseed, Rape Mustard seed, jeera, guar seed, the results indicate unidirectional causality between the mandi markets and the other two markets. Research limitations/implications These results shall facilitate policymakers to explore intervention through integrated agri-platform (IAP) in price discovery and market efficiency. Practical implications The results of this study are useful in understanding the price discovery of mandi markets and its role in the spot and futures market. Agricultural commodities price discovery depends upon the integration of all these three markets. Introduction of IAP as described in the paper shall facilitate price risk management apart from improving the efficiency of price discovery. Originality/value To the best of the knowledge, this is the first study considering mandi, spot and futures prices in the price discovery process in India. In addition, this study found the role of mandi markets in serving the economic function of price discovery and price risk management. Hence, suggests for policy intervention for Indian agricultural commodities to manage price risk.

Financial Risk Quantification of Indian Agro-Commodities using Value At Risk

Indian commodity traders are exposed to various risks like price risk, market risk, financial risk, credit risk, etc. To understand the risk resulting in the financial impact, this paper attempts to assess the historical trends of commodity prices and probability of loss occurrence in the commodity invested. The present study analyses five Indian agro commodities namely, Almond, Cardamom, Cotton, Guar Seed and Wheat using the data collected from secondary sources like Multi Commodity Exchange (MCX), Securities Exchange Board of India (SEBI) etc. This paper uses the Historical Simulation method for the calculation of Value at Risk (VaR) by considering spot prices of the commodities on MCX for a five year period (2013-2018). It is established that Value at Risk (VaR) is a relevant measure to arrive at risk which is useful for the commodity traders to estimate the financial risk and thus control the risk exposure

Hindustan Gum, Jodhpur: Managing Agribusiness Supply Chain Risks

Hindustan Gum is an agro-processor in Jodhpur, Rajasthan. It is primarily in the business of processing guar gum. The market volatility in demand and prices have shot up due to the need of guar gum in the new and growing shale gas fracking, primarily in the US. Hindustan Gum has been trying to respond to this by considering options like expansion in processing, and contract farming for guar seed sourcing.

Impact of futures trading on volatility of spot market-a case of guar seed

Purpose – Guar Seed crop is ruling the Indian International business mainly due to its application as a drilling fluid in shale energy industry concentrated in the USA. One of the allegations against futures market is its possible role in increasing the volatility of underlying physical market prices. Suspension of guar seed futures contract in 2012 at National Commodity Derivatives Exchange of India (NCDEX)-India, has reignited the controversy and raised an alarm bell to peek into obscure world of Indian commodity derivatives market. Against the backdrop of fiasco in guar futures trading, the purpose of this paper is to investigate whether sudden surge in futures trading volume leads to increase in the volatility of spot market prices. Design/methodology/approach – Guar seed spot returns volatility is modeled as a GARCH (1, 1) process. Futures trading volume and open interest are segregated into expected and unexpected components. The data are analyzed from 2004 to 2011 using Augmented GARCH model to study the contemporaneous relationship between spot volatility and unexpected futures trading activity and Granger Causality test for examining the dynamic relationship between them and ascertaining causality. Findings – Augmented GARCH model reports positive relationship between unexpected futures trading volume (UTV) and spot returns volatility, and, Granger Causality flows from UTV to spot volatility. Therefore, when the level of futures trading volume increases unexpectedly, the volatility of spot prices increases pointing toward the destabilizing impact of futures trading. However, hedger’s activity, represented by open interest is not seen to have any causal/destabilizing impact on spot price volatility of guar seed. Practical implications – The study provides empirical evidence to support the concern of regulators, genuine hedgers and other traders about the presence of excessive speculation and market manipulations perpetrated through futures market that is disturbing the underlying physical market instead of strengthening it by aiding in price discovery and risk mitigation. Originality/value – There are very few studies which have empirically investigated the temporal relation between volume and volatility in Indian agricultural commodity markets. With guar seed as a special case the present study investigates statistically the impact of futures trading on spot price volatility. In light of the findings of the study, the curb imposed on guar seed futures trading in 2012 was justified.

Preparation, Properties of Partially Hydrolized Guar Gum

Guar gum is a highly viscous water soluble heteropolysaccharide obtained from guar seed endosperm portion. Partially hydrolyzed guar gum (PHGG) is low in viscosity and has the healthy benefits as the dietary fiber. In this study, the effect of amount of acidolysis agent, ethanol content, acidolysis temperature and time on the acidolysis degree of guar gum was investigated by using the solvent method. The thermal properties were characterized by the idifferential scanning calorimeter and thermogravimetric analyzer, respectively. It was showed that the better conditions for preparing PHGG were: acidolysis temperature 40°C, acidolysis time 4h, ethanol mass concentration 61%, respectively. The freeze-thaw stability, expansion capability decreased after guar gum was partially hydrolized by hydrochloric acid. The onset temperature, end temperature and peak temperature of PHGG all increased, but its melting enthalpy and thermal stability were reduced, compared with those of guar gum.

Flavonoid content in seeds of guar germplasm using HPLC

Legume flavonoids have received considerable attention due to their beneficial effects on human health. Flavonoid content in the seeds of 36 germplasm accessions of guar [Cyamopsis tetragonoloba(L.) Taub.] was quantified by high-performance liquid chromatography (HPLC). On a per 100 g basis, the seed contained, on average, 1.114 mg (0–2.355) daidzein, 0.700 mg (0–1.685) genistein, 0.553 mg (0–1.250) quercetin and 14.460 mg (10.70–19.82) kaempferol. A significant positive correlation was observed between the content of daidzein and genistein; however, significant negative correlations existed between the content of kaempferol and daidzein and of kaempferol and genistein. Compared to soybean seeds, guar seeds contained very low amounts of daidzein and genistein, but a high amount of kaempferol. The information about the levels of flavonoids in guar seeds will be useful to breeding programmes for improving guar seed quality. Furthermore, the high kaempferol content of guar seeds may expand its nutraceutical and pharmaceutical utilization.