Futures trading ban brings down wheat prices

Mumbai: The government ban on futures trading in foodgrains seems to have the desired result as wheat prices have already started falling.

Finance minister P Chidambaram, in his budget proposals for 2007-08, had announced a ban on futures trading in wheat and rice.

As part of a full-fledged war on rising prices, futures trading on staples wheat and rice have been suspended in all commodity exchanges with immediate effect.

In a circular to the exchanges, the Forward Markets Commission said no new wheat and rice contract should be launched till further notification.

Operators have also been asked not to build or increase their position. Existing wheat contracts are expected to continue till March 20.

While the National Commodity and Derivative Exchange chief P Ravikumar said he was disappointed with the ban, given the positive tone of economic survey with respect to commodities in the market, Chidambaram refused to comment and merely said a committee would look into the matter.

The downslide in wheat prices continued unabated on persistent offerings by stockists against slowdown in buying by rolling flourmills after Forward Markets Commission announced the ban.

Wheat dara (for mills) remained in negative zone and prices declined to Rs1,000-1,005 per quintal from Rs1,020-1,035 per quintal while wheat MP (deshi) drifted to Rs1,200-1,550 per quintal from Rs1,390-1,590 a quintal.

Chidambaram, meanwhile, asked the industry to hold the price line to help the government contain rising inflation.

"I will urge the industry to hold the price line. I will ask them to cooperate in the fight against inflation," he said in a post-budget interaction.

He said inflation could be moderated through fiscal steps like duty cuts announced in the budget, monetary steps undertaken by RBI and augmentation of supplies.

Chidamabaram said the price line augmentation is the area where he needs industry support.

Inflation, which touched over a two-year high of 6.73 per cent for the week ended February 3, fell back to 6.63 per cent the following week but still remains far above the Reserve Bank's tolerance level of five to 5.5 per cent.

The inflation, driven mainly by increase in the cost of food and raw materials, have hurt the country's poor most.