Hedging of raw material to control operating costs by corporates by using commodity futures on indian commodity exchanges.

1. COMMODITY FUTURESCOMMODITY FUTURES

2. AGENDA
INTRODUCTION - Understanding
Commodity Futures Trading (‘CFT’).
TYPES OF COMMODITIES TRADED.
VARIOUS PARTIES INVOLVED.
BENEFITS TO PARTIES INVOLVED.
E-SERIES

3. UNDERSTANDING COMMODITY
FUTURES TRADING (‘CFT’)

4. GROUND REALITIES
Its a financial contract
The underlying commodity is bought or sold at a future date.
It is a tool used by Investors, Hedgers, Arbitrageurs, Day
Traders, etc..
The commodities are traded on Exchanges, which are
Screen based and Online,
transparent,
having counter party guarantee, and
having large settlement guarantee funds

5. FACTORS DRIVING CFT
Demand and supply
Seasonal patterns
Indian economic data/ policies
Weather
Import/ export parity and government policies
Forex/ currency movement against USD and
INR
Global political/ economic events and data
Global benchmark commodity Indices
Global commodity prices

6. MAJOR COMMODITIES TRADED
Edible oilseed complex - Mustardseed, Soybean
seed.
Food grains – Barley, Maize, etc.
Fibres - Cotton, Jute, etc
Spices - Turmeric, Pepper, Cardamom, etc.
Metals - Gold, Silver, Copper, Zinc,
Aluminum etc.
Energy _ Crude Oil, Natural Gas etc.
Others - Castorseed, Sugar, Jaggery, Rubber,

7. PARTIES INVOLVEDSpeculators
Arbitragers
Hedgers (Farmers, Producers, Processors,
Exporters etc)

8. BENEFITS TO PARTIES INVOLVED
Effective Price Discovery Platform
 A farmer can do crop planning by looking at prices
prevailing in the futures market
Efficient Price Risk management Tool
 A farmer can sell futures to ensure better price
realization and hedge against seasonal price volatility
 A processor / manufacturer can buy futures to
hedge against volatile raw material costs
 An exporter can buy / sell futures to commit a price
to his foreign clients and thus do better financial
planning
 A stockist can hedge his carrying risk to ensure
smooth prices of the seasonal commodities round the
year

9. COMMODITY DERIVATIVES -BENEFITS TO
HEDGERS
Hedgers
 Can use futures as protection or insurance,
against unfavorable price fluctuations Risks)
 Hedgers can protect themselves by taking an
opposite position in the futures market to
their exposed position in cash commodity
An Effective Risk Management Tool

13. Types Of HedgingLong Hedge
•This requires taking a long (buy) position in the futures contract.
•Appropriate when a certain asset or commodity would be
purchased in the future and one is interested in locking in the
price.
•Short Hedge
•This requires taking a short (Sell) position in the futures contract.
•Appropriate when a certain asset or commodity would be sold in
the future and one is interested in locking in the price now

14. Think and Act!
Now you have seen how Commodities market is
evolving worldwide especially the Commodity
Derivatives market in terms
• Profits
• Risk Mitigation Tool
• Risk Diversification
• Expansion
• Globalization
• In all Economic Savior

15. Let’s Begin!