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This paper investigates the relationship between the castor seed futures of National Commodity and Derivatives Exchange (NCDEX) and National Multi Commodity Exchange (NMCE). The castor seed future prices of near-month contracts over a period of 5 years from September 2009 to August 2014 were collected from NCDEX and NMCE websites. The study applied correlation and error correction model (ECM) for analysis and the study result shows that there exists a long-run as well as short-run co-integration between the castor seed future prices in NCDEX and NMCE, proving that there is an arbitrageur or cross-hedging possibility between the two commodity exchanges in respect of castor seed futures in India.
Key Words : Castor Seed, Error Correction Model, NCDEX, NMCE, Price Spread.
Indian commodity market is in its developing phase providing the price discovery for the commodities. The price spreads available in the markets give better investment opportunities for investors as well as hedgers, to make their hedging better. The commodity price is generally determined by the common economic factors of demand and supply. The price spread which exists between futures contracts of the same commodity and the deliverable in the same month but traded in different exchanges, is termed as inter-market spread.
Castor seed is obtained from Castor plant (Ricinus communis) grown in arid and semi-arid regions. It is a nonedible oilseed crop; basically a cash crop, with an average of 46% oil content in it. It is cultivated in 30 different countries on a commercial scale across the globe. Countries like India, China, Brazil, Russia, Thailand, Ethiopia and Philippines are the major castor seed growing countries accounting for about 88% of global production. In India, castor seed is a kharif crop, sowing in July-August and harvesting from December-March. States like Gujarat, Rajasthan and Andhra Pradesh are the major castor seed producing states in India. Castor oil extracted from castor seed and its by-products are used in manufacturing of soaps, lubricants, hydraulic and brake fluids, paints, dyes, coatings, inks, cold resistant plastics, waxes and polishes, nylon, pharmaceuticals and perfumes. India is the major player of castor derivatives in the global export market.
Castor seed is a non-food item that contributed major share (47.72%) of volume traded among the non-food commodity traded in Indian...