1. Impact of Futures Trading on Commodity Prices Golaka C. Nath and T. Lingareddy Vice President and Deputy Manager Research and Surveillance CCIL, Mumbai

2. Objective To study the impact of futures trading on agricultural commodity prices.

3. Methodology Simple percentage variations, correlations, Granger Causality Test Linear Regression

4. Source: Market Review, FMC (www.fmc.gov.in), NCDEX, MCXwww.fmc.gov.in Trends in volumes 200520062007Q1 Total Agri-com100Total Agri-com100Total Agri-com100 Guarseed38.4Gram26.5Gram16.4 Gram18.9Guarseed25.4Jeera15.6 Urad12.1Urad11.3Guarseed14.6 Mentha Oil2.2Soy Oil6.7Pepper13 Tur2.7Mentha Oil4.9Soy Oil11.5 Only three commodities have contributed for about 65 per cent of agril. volumes Gram and urad dominated the volumes among food grains in 2005 and 2006

6. Descriptive Statistics Jan 2001- Aug 2007 VariableNMeanStd DevMinimumMaximum churad3450.049892.07594-7.892549.05657 chgram3450.07321.28355-6.164665.07658 chpulses3450.085440.97699-2.780824.77107 chfood3450.065930.37391-1.140911.60584 chcommo3450.086390.20299-0.457671.08874 churadchgramchpulseschfoodchcommo ch urad1 ch gram0.23*1 ch pulses0.76*0.61*1 ch food0.37*0.32*0.47*1 ch commo0.050.13*0.16* 1 ch: Indicates change; * Indicates significant at one per cent level Correlation Coefficients of Price Changes

7. Results of regression for urad VariablesCoefficientStd. Errort-StatisticProb.Significance C-0.1450.085-1.7090.088 Urad (-1)-0.0930.031-3.0060.003* Gram-0.6150.063-9.7930.000* Pulses2.0760.08823.5630.000* Food grains0.2180.1931.1300.259 All-commodities-0.5560.318-1.7490.081 D-urad0.2780.1362.0410.042** R-squared0.688274 Adjusted R-squared0.682724 Durbin-Watson stat2.187826 n345 * and ** indicates significant at 1% and 5% level

8. Regression results for gram Coefficientst- StatisticP-valueSignificance Intercept-0.081-1.1120.267 D-gram0.1121.1160.265 Gram(-1)0.0280.5010.617 pulses1.33116.0470.000* food0.1631.0850.279 All-commodities-0.084-0.3400.734 urad-0.359-9.6710.000* R Square0.526 Adjusted R Square0.512 Observations345

9. Granger causality results for price changes Null Hypothesis:F-StatisticProb.Significance CHPULSES does not Granger Cause CHGRAM0.660790.6196 CHGRAM does not Granger Cause CHPULSES2.721570.0296** CHURAD does not Granger Cause CHGRAM1.367520.2449 CHGRAM does not Granger Cause CHURAD4.073550.0031* CHURAD does not Granger Cause CHPULSES2.534940.0401** CHPULSES does not Granger Cause CHURAD5.424270.0003* Granger causality results for price volatilities ** and *** indicates significant at 5% and 10% level Null Hypothesis:F-StatisticProb.significance VOLA_URAD does not Granger Cause VOLA_FOOD2.40750.0923*** VOLA_FOOD does not Granger Cause VOLA_URAD0.201210.8179 VOLA_PULSES does not Granger Cause VOLA_GRAM1.565260.2112 VOLA_GRAM does not Granger Cause VOLA_PULSES3.440680.0337** VOLA_URAD does not Granger Cause VOLA_PULSES3.191250.0429** VOLA_PULSES does not Granger Cause VOLA_URAD1.002750.3684

11. Volatilities in Prices UradGramPulsesFood grainsCommodities Average change in prices P-I-0.168-0.054-0.0120.0230.093 P-II0.4630.3900.3030.1400.079 P-III-0.296-0.450-0.2110.0260.073 Standard Deviation P-I1.7161.2260.8270.3890.202 P-II2.5441.3061.1740.3490.215 P-III1.7561.2840.7840.3360.157

12. Conclusions There was a significant increase in spot urad prices during the period of futures trading Although gram prices too have posted a moderate rise in the post-futures trading period, the impact was not found statistically significant. The average price increase and volatilities in urad, gram and total pulses have gone up during the period of futures trading

13. Thank you