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India Suspends Trading Of Crude Palm Oil And Other Agricultural Products Futures For One Year

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India's futures regulator-the Securities Exchange Commission (SEBI) announced on its website on Monday that India's exchanges will suspend the trading of seven agricultural product futures, including crude palm oil and soybean oil, for a period of one year.

SEBI said that the affected futures include crude palm oil, soybeans and manufactured products, rice (non-basmati), wheat, chickpeas, rapeseed and manufactured products, and mung beans. Traders can close positions, but cannot open new positions.

On Monday, an official from the Ministry of Consumer Affairs and Food Public Distribution of India said that the decision to suspend these futures transactions would help lower prices, especially the prices of edible oil and oilseed products. Despite recent measures taken by the Indian government to cut consumption taxes, domestic food prices have been rising in the past few months. Statistics from the Ministry of Statistics show that the Indian Consumer Price Index, which is used to assess retail inflation, rose 4.91% in November, setting a three-month high, and food prices are also rising. The wholesale price index used to assess wholesale price inflation rose by 14.23% in November, up from 12.54% in October. This is also the eighth consecutive month that the index has remained at a double-digit level. Officials said that a ban on agricultural futures trading would limit price speculation and may help curb price increases. In addition, the weakening of the Indian rupee exchange rate has also pushed up the prices of imported products.

However, market participants are skeptical about the effectiveness of prohibiting agricultural futures trading. Market participants said that the decision may control prices in the short term, but it may be invalid in the long run. Traders said that the government's move was aimed at stabilizing those that had already hit a new high in each year. However, local prices, especially palm oil and soybean oil, are largely synchronized with international prices, so the effect of suppressing local edible oil prices may not be obvious. Therefore, this move may stabilize prices in the short term, but may not be able to suppress prices for a whole year. Vivako Pasak, the managing director of an Indian trading company, said that due to the suppression of speculative activities, prices may fall in the short term, but if the ban is not lifted in the near future, it may actually have the opposite effect because it is not conducive to Price discovery may lead to price monopoly.

Buyers of crude palm oil can still refer to the crude palm oil contract of the Malaysian Derivatives Exchange (BMD), and buyers of soy oil can refer to the price of the Chicago Board of Trade (CBOT). For some buyers, using only CBOT soybean oil prices for pricing can be challenging. Some buyers may not be familiar with basis calculations in the pricing of futures contracts. Sandip Bayoria, CEO of India’s Sunvin Group, said the government took this drastic move out of fear of food price inflation. This will slow down the pace of imports, because futures hedging and price discovery functions will be affected.

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