Misgivings of Future

There has been much analysis regarding the usefulness of Futures in our commodity market more importantly in our Agri commodity market Everytime when there is a spike in the prices of the major cereals and other important agri commodities there is a concerted move by the political establishments to attack the policy of futures In order to acquaint ourselves with this concept lets first know about Futures Futures trading is characterized by a transaction which is agreed upon between the parties and the settelment is contractually deferred to a predefined future date Future dated supply and future dated demand generate the future prices A farmer who sells goods at a future harvest date at a locked in price appears to be fundamentally sound proposition But a key source of mistrust vis -vis futures arise in context of spot-futures arbitrage For example when a bad news comes about Monsoon the futures price goes up immediately At this point traders,big companies buy goods from the spot market and start storing them If it is done to honour your contract it is fine but when you start buying substantially in order to influence the future course of action then it is seen as profiteering or more precisely; Hording; But conversely one can argue that this a common natural reaction of the market exchange system In case of anticipated bad news the spot prices go up and thus consequent economic activities So its not only true for agri commodities but for all commodities in general Infact they argue spot- futures arbitrage entice all correct resonses; stock prices go up, stocks are built up and future prices are watered down enabling stabilisation of prices So if we analyse the scenario the truth lies in between Whereas Futures as a mechanism is needed in the system, at the same time we should try to build in mechanisms so that misuse of this system is averted In this context there is a need to strengthen the Forward contract regulation act As in USA where there is commodity futures trading commission which deals with all the aspects of derivatives ,similarly there is aneed to have a body like this In India Too many supervisory organizations work at cross purpose often promoting their own agenda and interests in addition vested political interests Let there be transperancy and used as a tool of economic activity and nothing else