The Future of Futures in India
by Khurram Naik
India banned futures trading in wheat and rice yesterday. According to the UN’s Food and Agriculture Organization, India is the world’s second largest producer of wheat. India just began importing wheat after 6 years and recently banned exports. Prime Minister Manmohan Singh is facing unrest as inflation rises. India is also potentially faced with lowering import duties on commodities.
Wheat futures surged in October in part to manage price risk from the increased US wheat exports. The USDA is currently forecasting India will import 3 million tons of wheat in 2007-8. The ban in outright futures is driven by political risk, and it is certain that Indian processors and suppliers will turn to the global futures markets to compensate. The recent news will most likely provide further momentum for wheat as it makes new highs.
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