More than 100 years ago, W.K. Kellogg saw the promise in the grain and created the cornflake out of a single grain of toasted corn. This was nothing less than a revolution in breakfast foods. Today not just breakfast but even lunch or dinner in India or any part of the world is incomplete without some form of cereal. Today cereal grains like wheat, rice, corn, oats, barley, maize or millet are an integral part of the healthy diet for millions of people in the world.
Food or staple food essentially consists of a combination of three things—Cereals, pulses and vegetables which together make up a balanced diet. People – rich and poor consume varying combinations of grains and pulses like rice & dal, roti with dal and sandwiches made from bread — in at least one or all three square meals. The three main kinds of cereal Maize, wheat and rice collectively account for 87% of all grains produced worldwide and 50% of all food calories. Cereals have a prospect to eradicate hunger and ensure long-term food security for all.
The word cereal is derived from the Roman goddess of harvest and agriculture called Ceres. Cereals are grown in greater quantities and provide more food energy worldwide than any other crop. Cereals as a group are the largest agricultural crop weight and an essential part of people’s diets worldwide. Cereals are in demand in the food and brewage industry. These are a few reasons why cereals are– an important commodity, an asset to be traded. All kinds of people from farmers/producers to consumers, traders or investors are affected by fluctuations in its prices. The answer lies in having cereals in the investment portfolio. Some of the benefits of hedging and futures trading in cereals could lead to future price guarantees and minimization of risks. Using the commodities exchanges say – a corn farmer corn can sell a futures contract on his corn, which is still to be harvested in a few months and guarantee the price he will be paid when he delivers. This protects the farmer from price drops and the buyer from price rises.
As the 3rd largest agro-commodity exchange and 6th largest commodity exchange in the world NCDEX provides a platform for both the buyer and a seller to look after their interest and forge a formal agreement to exchange a specified quantity of assets of specified quality at a specified price, and specified date. The participants can hedge their price risk. The futures contract provides price certainty for both parties and reduces the risks associated with price volatility. Futures trading offers a lot of potential for market-savvy investors, arbitrageurs, hedgers and speculators. Barley, Maize and Wheat are the three main kinds of cereal traded at NCDEX’s Jaipur, Nizamabad and Delhi centres respectively. Punjab, UP, MP, Haryana, Bihar, AP, Maharashtra and West Bengal are in general the states that contribute to India’s agriculture basket.
The cultivation of cereal is quite similar. Most cereals are annuals plants, meaning one planting yields one harvest. Wheat, rye, triticale, oats and barley, are the “cool-season” cereals. Barley and rye can sustain extreme colds and are likely to grow in multiple crops in a year. Winter varieties are sown in the autumn and mature in late spring or early summer. The “warm-season” cereals are tender and prefer hot weather. Rice is commonly grown in flooded fields, though some strains are grown on dry land. They are planted in early spring and mature in late summer. They require more water and yield less than winter cereals. Once the seed is mature the main plant becomes brown and dry. When the parent plants and the seed kernels are reasonably dry, harvest can begin. The grain after harvest needs proper storage facilities to protect it from small grain pests, rodents and birds.
Barley is a wonderfully versatile cereal grain grown in Rabi season. It serves as major animal fodder, a source of fermentable material for beer and certain distilled beverages, and as a component of various health foods. It is used in soups and stews, and in barley bread of various cultures. Rajasthan is the leading state for producing Barley followed by Uttar Pradesh and Haryana. Barley produced in India is mainly exported to Saudi Arabia, UAE, Yemen and Kuwait.
Barley is among the most liquid and highly traded commodities with the maximum number of Future contracts in recent years.
Maize is a Kharif as well as Rabi crop, India gets a greater part of the total maize production from Kharif season crop. Maize is cultivated mainly for food, fodder, feed, and industrial use. Andhra Pradesh is the leading producer of Maize followed by Karnataka, Maharashtra, Rajasthan and Bihar. Human consumption accounts for less than one-third of total maize consumption in the country and a greater share is used collectively for poultry feed; animal feed and industrial use. Maize exports from India have been rising in the last 3-4 years.
Wheat – is a major food grain grown in the Rabi season in India. India is the second-largest producer of Wheat in the world after China. Wheat is covered under the Essential Commodities Act, 1955. The main elements of the Government’s food management policy are procurement, storage and movement of food grain, public distribution and maintenance of buffer stocks. The government procures nearly 25 per cent of the total production of wheat.
However, the prices of cereals despite being an important part of the food for human survival are never stable and keep fluctuating. Two main reasons for this are first India has to depend upon imports to meet the shortfall of domestic demand. Secondly as a result of harvest and post-harvest distribution losses and use of cereal for animal feed only an estimated 43% of the cereal produced is available for human consumption.
Rising food prices affect the poorest more than the rich. The prices of both rice and wheat have a correlation with price inflation which is more likely to affect the poor. Many of them are already spending close to 70–80% of their daily income on food. They cannot afford to spend more on food, without being pushed into a quagmire of hunger and poverty.
This is where the importance of NCDEX comes in, which has played a key role in stabilizing the prices of commodities by presenting an efficient system of exchanges, insurance companies, banks and aggregators.
Commodity exchanges began in the middle of the 19th century when businessmen began to organize market forums to buy and sell commodities. Carrying on this legacy, NCDEX provides a platform for buyers and sellers to set the quality, standards, and establish rules of business.
On the mutually agreed date of maturity of a futures contract, a farmer is required to ensure that a specified amount of goods or a specified quality are physically delivered at the NCDEX exchange for delivery to the buyer. By acting as a responsible mediator NCDEX ensure that not only the buyer and seller’s interests are secure but fact that they love to come back again. At present, there are more than 150 NCDEX accredited warehouses for effecting cereals delivery through exchange platforms in various states of the country.
Futures trading are beneficial to all the sectors of the economy. It helps to discover price and manages price risk with respect to a particular commodity. The end result is a shrinking of the value chain by providing a transparent trading platform. The seasonal variations and vagaries of the monsoon often make it difficult to predict the price of a commodity this is where futures trading helps to absorb the price risk and stabilize it.
Futures have effectively provided benchmark prices for Barley, Maize and Wheat in India and benefitted millions of farmers. Come… let’s celebrate the future’s trade of the future.