COMMODITY MARKET

TEJASVEE CHAVAN NEHA GAIKWAD BHAGYASHREE GAWADE SHRUTI KOLI PRIYANKA PHADTARE PRIYANKA SHINDE RUJUTA ZAJAM

910307 910310 910311 910321 910331 910341 910344

COMMODITY MARKET
A commodity refers to any good, merchandise or produce of a land that can be bought and sold. A commodity is an article or product that; Is used for commerce, Is moveable, Has value, Can be bought and sold, Is produced or used as a subject in a barter or sale.

VALUE CHAIN
PRODUCERS ASSEMBLERS TRADER PROCESSORS DISTRIBUTERS RETAILERS CONSUMERS

PHYSICAL COMMODITY MARKET:

Traditional market. Spot contract. Settlement in cash. Buyer can select and buy the specific commodity required.

FEATURES OF COMMODITY MARKET

Setting up Mandis Products Participants Trading Price Clearing, Delivery and Settlement Regulation

DERIVATIVES
A derivative is a financial instrument whose value depends on or is derived from the value of an underlined asset The underlined asset could be: Commodity Foreign exchange Equity Interest rate Index Weather Pollution Commodity derivative is a contract to either buy or sell a commodity at a certain time in future at a price agreed upon at a time of entering into the contract

TYPES OF DERIVATIVE FORWARDS FUTURES OPTIONS SWAPS

DERIVATIVES ARE TRADED IN 2 DIFFERENT MARKETS OVER THE COUNTER (OTC) MARKETS FORWARDS SWAPS EXCHANGES TRADED FUTURES OPTIONS

OVER THE COUNTER

Market conducted directly between dealers and principals. No automatic disclosure of the price of deals. Deals and traded instruments are not standardized. Major OTC derivatives are forwards and swaps.

FORWARD
Highly Customise And Not Traded On Exchanges. Specified Future Date Is Called As Maturity Date  The Parties That Agrees To Buy Is Said To Have Taken A Long Position. The Party That Agrees To Sell Is Said To Have Taken A Short Position.

COMMODITY SWAPS
Swaps means an exchange To exchange 2 different streams of cash flows which are dependent on the price of an underlined commodity. A commodity swap is used to hedge against the price of a commodity.

EXCHANGE TRADED DERIVATIVES

Futures Common Terminology Used In Futures Contract: Spot Price Futures Price Contract Cycle Expiry Date Delivery Unit Basis Margin

OPTION
An option is an agreement between two parties one of whom is the buyer and the other is seller. An option gives the holder or buyer of the option the right. But not the obligation to buy or sell an asset at a known fixed price ( called the exercise price) at a given point in the future.

Two Types Of Option

Call Option Put Option Several Terms Used In The Context Of Option Buyer/Holder/Owner Seller/ Writer Long Position Short Position Option Price

COMMODITY DERIVATIVES v/s FINANCIAL DERIVATIVES.

Risk Management Tool Hedging Mechanism Difference In Commodity Derivatives And Financial Derivatives In Terms: Physical Settlement Warehousing Quality Of Underlying Assets

COMMODITY DERIVATIVES Commodity derivatives may be settled by actual deliveries. Quantity and quality differences exit. Holding cost includes assaying, warehousing and insurance costs. Physical markets are seasonal in nature. Factors impacting: y Demand and supply y Import export regulations y Government intervention

FINANCIAL DERIVATIVES Financial derivatives are only cash settles on the given day. No quantity and quality differences exit. Holding cost normally consists of only interest costs. Financial markets are active throughout the year. Factors impacting: y Global and local economic conditions y Performance of the entity y Taxations structures.

Types Of Trader
Proprietary Traders Market Makers Scalpers Day Traders Position Traders

HEDGING
BASIC PRINCIPLES OF HEDGING Hedgers are market participants who want to transfer risk. Hedgers include various sets of people such as , consumers, processors traders and producers.

HEDGING STRATEGIES There are two main hedging strategies: Short Hedge Long Hedge

SPECULATION

SPECULATION

BASIC PRINCIPLES OF SPECULATION Buying and holding shares is simpler than buying and holding commodities. However, speculating in the futures market of commodities is quite similar to speculating in financial markets

ARBITRAGE BASIC PRINCIPLES OF ARBITRAGE Arbitrage involves the simultaneous purchase and sale of the same or similar asset in two different markets for different prices, leading to profits for the arbitrager

GLOBAL COMMODITY EXCHANGES

Oldest commodity exchanges in the world : 1. Chicago board of trade (CBOT) 2. Chicago mercantile exchange (CME)

COMMODITY EXCHANGES IN DEVELOPING ECONOMY AFRICA SAFEX ZIMACE ASIA China Malaysia Taiwan Indonesia Singapore Thailand India LATIN AMERICA Brazil Argentina Mexico

FMC
COMMODITY EXCHANGES NATIONAL EXCHANGES REGIONAL EXCHANGE NBOT
20 Other Regional Exchange

NCDEX

NMCE

MCX

FUNDAMENTAL ANALYSIS OF SUGAR

SUGAR SEASONS: October-september Global Demand Scenario Global Supply Scenario Pricing Pattern Of Sugar-global Scenario Indian Scenario Demand Scenario

SY

2000

2001

2002

2003

2004

2005

NUMBER OF FACTORIES 1. COOPERATIVES 2. OTHERS INSTALLED CAPACITY THOUSAND TONNES 1. COOPERATIVES 2. OTHERS PRODUCTION THOUSAND TONNES 1. COOPERATIVES 2. OTHERS CAPACITY UTIL% 1. COOPERATIVES 2. OTHERS

423 251 172 16,181

436 259 177 16,820

434 250 184 17,685

453 269 184 17,498

422 235 187 18,802

400 203 197 18,985

9,069 7,112

9,286 7,535

9,985 7,699

10,182 7,316

10,694 8,109

10,684 8,302

18,200 10,369 7,831 112.5 114.3 110.1

18,511 10,499 8,012 110.1 113.1 106.3

18,528 9,408 9,120 104.8 94.2 118.5

20,145 10,164 9,981 115.1 99.8 136.4

13,546 6,015 7,531 72.0 56.2 92.9

12,691 4,653 8,038 66.8 43.6 96.8

PER CAPITA CONSUMSTION 2006/07 est.

Brazil Australia Thailand EU South Africa Swaziland USA India Zambia Malawi China Tanzania Mozambique
0 20 40 60

Kilograms Per Annum

TOP SUGAR PRODUCERS 2006/07 est.

Brazil India EU China USA Thailand Mexico SADC Auatralia Pakistan 0 10 20 30 40

Million tons

TOP SUGAR EXPORTERS 2006/07 est.

Brazil Thailand Australia SADC Guatemala India EU South Africa Colombia Cuba
0 5 10 15 20 25

Million Tons