1. Price Convergence in Agricultural Commodity Market
SURABHI MITTAL

2. What we know?
Commodity exchanges were initiated by The Government of India in
This can be an effective mechanism for price discovery and risk management.
MCX and NCDEX
Soya oil, guar seed, guar gum, gram, jute, rubber, pepper, turmeric, wheat, kapas etc

3. What we don’t know?
Institution of the commodity spot markets in not well developed
Price discovery is poor in terms of efficiency
Degree of price volatility
Relationship between the spot and future prices

4. What we intend to find? Convergence of spot and futures prices
Present state of relation between spot and future prices
Decompose the factors that impacts the convergence
Agricultural commodity markets.
Policy implications and recommendations based on the derived results.

5. Spot vs Future Price
Spot prices: Prices agreed in present and cash paid instantly to get the commodity.
Future prices: Price agreed in present time and exchange of commodity for payment is done later at the end of the contract.
As futures contract nears expiration
Futures price = Spot price
Futures price > Spot price, we can buy in spot and sell in futures
Futures price < Spot price
Difference in the convergence is explained
Arbitrage
Law of supply and demand
Storage, seasonality, transportation costs etc
The gap contain information about the expected future price

6. How do we find?
Notion of the law of one price, notion of market integration.
To analyze price convergence in the present context apply several methodologies
Correlation analysis
Stationary and co-integration analysis
Price indexes.
Impacts of various factors that lead to non convergence would be decomposed using the methodology of decomposition models.

7. Data Data - Major agricultural commodity traded Sensitivity analysis
The time period would be post 2003
Averaged monthly/weekly data points

8. Thank You!