Introduction :

Introduction A bulk good such as an agricultural product, food, natural resource or metal that is traded on an
exchange in bulk quantities. A commodity is any homogenous item which may be freely bought and sold.
The term typically refers to products such as coffee, cocoa and soyabeans (soft commodities) or gold,
aluminium and platinum (hard commodities). Commodities typically are bought and sold in futures markets
where producers combine with manufacturers and speculators to create a smoothly functioning market.

Commodity Market :
Commodity Market Commodity market is a place where trading in commodities takes place. These are the
markets where raw and primary products are exchanged. These raw commodities are traded on regulated
commodity exchanges, in which they are bought and sold in standardised contracts. It is similar to an equity
market, but instead of buying or selling shares one buys or sells commodities. The commodities markets are
one of the oldest prevailing markets in the human history. In fact, derivatives trading started off in
commodities with the earliest records being traced back to the 17th century when rice futures were traded in
Japan.

Global Classification :
Global Classification Precious Metals: Gold, Silver, Platinum, etc. Other Metals: Nickel, Aluminum, Copper,
Zinc, etc. Agro-Based Commodities: Wheat, Rice, Corn, Cotton, Oils, Oilseeds, etc. Soft Commodities:
Coffee, Cocoa, Sugar, etc. Petrochemicals: High Density Polyethylene, Polypropylene. Live-Stock: Live
Cattle, Pork Bellies, etc. Energy: Crude Oil, Natural Gas, Gasoline, etc.

How is Indian Market Moving? :

How is Indian Market Moving? Turnover in agriculture grew 375 per cent over the past two years. There are
18 commodity exchanges in India. Multi Commodity Exchange of India Ltd (MCX), located at Mumbai.
National Commodity and Derivatives Exchange Ltd (NCDEX), located at Mumbai. National Board of Trade
(NBOT), located at Indore. National Multi Commodity Exchange (NMCE), located at Ahmedabad. Trading in
country’s commodity exchanges totalled $460 billion in the financial year ended 2005, a four-fold jump from
the year before. Currently, the commodity market in India clocks a daily average turnover of Rs 14,000-
16,000 crore. Only 4 commodities out of the 94 allowed for trading account for over 70 per cent of the total
turnover. This does not speak highly about the commodity futures market in terms of its width and depth.

How is Indian Market Moving? :

How is Indian Market Moving? The Survey has admitted that gold and crude oil account for the major part of
the total transactions in the futures market at present. During 2005-06, the total value of commodity futures
trade was Rs. 21.34 lakh crore as compared to Rs. 5.71 lakh crore during 2004-05 showing an increase of
274%. The volume of trade has also gone up to 6685 lakh tonnes during 2005-06 as compared to 1942 lakh
tonnes during 2004-05. The trade volume has also gone up by 244% during 2005-2006.

Mega Trends in Commodity :

Mega Trends in Commodity Reduction of government intervention Globalisation (competition vs. market
opportunities) Technology revolution: information and bio-sciences The consumer as queen New “corporate”
business models

Indian Market :
Indian Market 64% of pop. Works in agriculture=35 % GNI. It now accounts for approx. 23 % of GDP
compared to 50 % in 1947. Economy potentially very strong, large industrial output, technological knowledge
and extensive reservoir of skilled manpower. Exports: cotton goods, iron, jute products, coffee, electrical
goods, leather, handicrafts, diamonds, chemicals, auto and software. Imports are machinery, petroleum,
chemicals, cereals, copper, and zinc.

Fraction of Agriculture in National GDP :

Fraction of Agriculture in National GDP

Market Structure: Spot :

Market Structure: Spot Minimum Support Price (MSP) Mandis Product – primary and non-primary,
Participants, Trading, Clearance, Settlement, Governance Problems: Price dissemination Lack of standards

Market Structure: Spot :

Market Structure: Spot Price discovery Contract design, trading system, clearing system, settlement,
participants, regulations and governance Problems: Lack of price transparency Lack of contract size Lack of
regulatory compliances
Some Recent Facts :
Some Recent Facts There are 18 existing commodity exchanges in India offering domestic contracts in 8
commodities and 2 exchanges that have permission to conduct trading in international (USD denominated)
contracts. There are around 1,700 brokerages in India today, many of which are single proprietary concerns.