Price Spread among the Indian Agricultural Commodity Futures

The commodity futures market in India is in its developing phase and many researches have been undertaken in this upcoming area of finance. The significance of the study is an attempt to analyse the linkages among the various agricultural commodities and their cross-hedging possibility in India. The spreads available in the market give better investment opportunities for investors as well as hedgers, to make better hedging. The study is based on secondary data collected from National Commodity and Derivatives Exchange (NCDEX). Out of 30 agricultural commodities traded in NCDEX, only 12 agricultural commodities like barley, castor seed, chana, coriander, cotton seed oilcake, jeera, mustard seed, refined soy oil, soybean, sugar, turmeric and wheat whose data are available in the data source for five years on near-month contract basis from April 2009 to March 2014 are considered for analysis. The selected agricultural commodity futures price relationship is tested applying the error correction model (ECM) of Engle and Granger (1987). The stationarity of the time series is investigated with the Augmented Dickey-Fuller (ADF) test (1979). The result thus obtained reveals that there exists short-run and long-run equilibrium among the agricultural commodities futures in India based on micro-economic factors like supplementary, complementary, competitive harvest and competitive sowing periods. Thus, the study proves that there exists cross-hedging opportunities and spread opportunities among the Indian agricultural commodity futures during the study period.