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Crude Palm Oil Becomes India’s Largest Traded Farm Contract

The crude palm oil (CPO) contract has become the country’s largest traded farm futures contract in the first eight months of 2020, as volatile prices amid continued supply uncertainties in producing nations due to the pandemic pushed participation of both hedgers and speculators in the market.

According to data sourced from the Multi Commodity Exchange‘s (MCX) website, the average daily turnover in the crude palm oil contract was Rs 273.60 crore. The daily volume averaged 39,068 tonnes, or over 5 per cent of the country’s monthly imports.

The turnover from January to August totalled 6.6 million tonnes, priced at about Rs 46,238 crore, the data showed.

“The exchange has constantly been engaged in providing an efficient and robust price discovery process through its outreach and regular consultations with all stakeholders in the agri value chain,” a senior MCX official said, adding that the increased participation was the result of the exchange’s efforts to engage with hedgers in managing their price risks.

India is one of the largest consumers of palm oil and imports more than 9 million tonnes annually from Indonesia and Malaysia. Both countries have witnessed production falling sharply during the peak of the pandemic.

Heavy rains in June and July had also affected the production of palm oil in Indonesia and Malaysia, leading to a spurt in prices despite consumption falling across the globe due to pandemic. In India, palm oil is used by the hotel, restaurant and catering businesses and by lower- to middle-income families.

Prior to the pandemic, crude palm oil prices had topped Rs 800 per 10 kg, a record high, on the MCX, before falling to Rs 650 in early April. Since then, supply uncertainties started pushing prices higher.

“Such volatility makes a perfect case of need for hedging price risks for edible oil importers,” said Kunal Shah, the head of commodities research at Nirmal Bang.

Indian traders face another risk of policy changes, as the government is mulling ways to reduce dependence on imports of farm products. In the edible oil segment, the government has been under constant pressure to lower the import of the refined varieties to increase the utilisation of domestic refining capacities.

Also, changes in duties and a fortnightly revision in the base tariff price, on which the import duty is levied, make it necessary for importers to take some cover in the form of hedging on the futures platform.


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