impact of futures trading on commodity prices
DESCRIPTION
Impact of Futures Trading on Commodity Prices. Golaka C. Nath and T. Lingareddy Vice President and Deputy Manager Research and Surveillance CCIL, Mumbai. Objective. To study the impact of futures trading on agricultural commodity prices. Methodology. - PowerPoint PPT PresentationTRANSCRIPT
Impact of Futures Trading on Commodity Prices
Golaka C. Nath and T. LingareddyVice President and Deputy Manager
Research and Surveillance CCIL, Mumbai
Objective
• To study the impact of futures trading on agricultural commodity prices.
Methodology
• Simple percentage variations, correlations, • Granger Causality Test
• Linear Regression
dummyfoodgrainsallcommo
pulseschanauradurad
tt
ttt t
***
***
654
3211
tkt
p
k kkt
p
k kt uXYY 110
tkt
p
k kkt
p
k kt XYX 110
Source: Market Review, FMC (www.fmc.gov.in), NCDEX, MCX
Trends in volumes
2005 2006 2007Q1
Total Agri-com 100 Total Agri-com 100 Total Agri-com 100
Guarseed 38.4 Gram 26.5 Gram 16.4
Gram 18.9 Guarseed 25.4 Jeera 15.6
Urad 12.1 Urad 11.3 Guarseed 14.6
Mentha Oil 2.2 Soy Oil 6.7 Pepper 13
Tur 2.7 Mentha Oil 4.9 Soy Oil 11.5
• 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
Trends in prices & futures volumes
100
150
200
250
300
350
400
450
500Ja
n-0
1
Ma
y-0
1
Se
p-0
1
Jan
-02
Ma
y-0
2
Se
p-0
2
Jan
-03
Ma
y-0
3
Se
p-0
3
Jan
-04
Ma
y-0
4
Se
p-0
4
Jan
-05
Ma
y-0
5
Se
p-0
5
Jan
-06
Ma
y-0
6
Se
p-0
6
Jan
-07
Ma
y-0
7
Pri
ce
ind
ex
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
vo
lum
es
(0
00
) M
T
urad gram Pulses gram vol urad vol
Descriptive Statistics Jan 2001- Aug 2007
Variable N Mean Std Dev Minimum Maximum
churad 345 0.04989 2.07594 -7.89254 9.05657
chgram 345 0.0732 1.28355 -6.16466 5.07658
chpulses 345 0.08544 0.97699 -2.78082 4.77107
chfood 345 0.06593 0.37391 -1.14091 1.60584
chcommo 345 0.08639 0.20299 -0.45767 1.08874
churad chgram chpulses chfood chcommo
ch urad 1
ch gram 0.23* 1
ch pulses 0.76* 0.61* 1
ch food 0.37* 0.32* 0.47* 1
ch commo 0.05 0.13* 0.16* 0.16* 1
ch: Indicates change; * Indicates significant at one per cent level
Correlation Coefficients of Price Changes
Results of regression for urad
Variables Coefficient Std. Error t-Statistic Prob.
Significance
C -0.145 0.085 -1.709 0.088
Urad (-1) -0.093 0.031 -3.006 0.003 *
Gram -0.615 0.063 -9.793 0.000 *
Pulses 2.076 0.088 23.563 0.000 *
Food grains 0.218 0.193 1.130 0.259
All-commodities -0.556 0.318 -1.749 0.081
D-urad 0.278 0.136 2.041 0.042 **
R-squared 0.688274
Adjusted R-squared 0.682724
Durbin-Watson stat 2.187826
n 345* and ** indicates significant at 1% and 5% level
Regression results for gram
Coefficients t- Statistic P-value Significance
Intercept -0.081 -1.112 0.267
D-gram 0.112 1.116 0.265
Gram(-1) 0.028 0.501 0.617
pulses 1.331 16.047 0.000 *
food 0.163 1.085 0.279
All-commodities -0.084 -0.340 0.734
urad -0.359 -9.671 0.000 *
R Square 0.526
Adjusted R Square 0.512
Observations 345
Granger causality results for price changes
Null Hypothesis: F-Statistic Prob. Significance
CHPULSES does not Granger Cause CHGRAM 0.66079 0.6196
CHGRAM does not Granger Cause CHPULSES 2.72157 0.0296 **
CHURAD does not Granger Cause CHGRAM 1.36752 0.2449
CHGRAM does not Granger Cause CHURAD 4.07355 0.0031 *
CHURAD does not Granger Cause CHPULSES 2.53494 0.0401 **
CHPULSES does not Granger Cause CHURAD 5.42427 0.0003 *
Granger causality results for price volatilities
** and *** indicates significant at 5% and 10% level
Null Hypothesis: F-Statistic Prob. significance
VOLA_URAD does not Granger Cause VOLA_FOOD 2.4075 0.0923 ***
VOLA_FOOD does not Granger Cause VOLA_URAD 0.20121 0.8179
VOLA_PULSES does not Granger Cause VOLA_GRAM 1.56526 0.2112
VOLA_GRAM does not Granger Cause VOLA_PULSES 3.44068 0.0337 **
VOLA_URAD does not Granger Cause VOLA_PULSES 3.19125 0.0429 **
VOLA_PULSES does not Granger Cause VOLA_URAD 1.00275 0.3684
0
1
2
3
4
5
125 150 175 200 225 250 275 300 325
VOLA_COMMO VOLA_FOODVOLA_GRAM VOLA_PULSESVOLA_URAD
Volatility of Prices (Jan 2003 - Aug 2007)
Volatilities in Prices
Urad Gram Pulses Food grains Commodities
Average change in prices
P-I -0.168 -0.054 -0.012 0.023 0.093
P-II 0.463 0.390 0.303 0.140 0.079
P-III -0.296 -0.450 -0.211 0.026 0.073
Standard Deviation
P-I 1.716 1.226 0.827 0.389 0.202
P-II 2.544 1.306 1.174 0.349 0.215
P-III 1.756 1.284 0.784 0.336 0.157
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
Thank you