Price Discovery and Hedging Effectiveness of Futures Market for Coriander, Cumin and Turmeric in India
Price: ₹ 500
Author: Parth Shah, Daya Suvagiya and Niraj Shukla
Author Address: Senior Research Fellow, Department of Agricultural Economics, N.M. College of Agriculture, NAU, Navsari-396 450 (Gujarat), Senior Research Fellow, ASPEE Agribusiness Management Institute, NAU, Navsari-396 450 (Gujarat), and Vice President, National Commod
Keywords: Basis risk, futures market, hedging, integration, NCDEX, stationarity.
JEL Codes: C22, G13, G32, Q02, Q13.
Abstract
The present study investigated the long-term relationship between the spot and futures prices of three spice commodities, Coriander, Cumin, and Turmeric, using daily spot and futures price data from 2014 to 2023. Additionally, it analysed the hedging benefits associated with these spice commodities in the futures market. The selected agricultural commodities contribute significantly to futures trading in the agricultural sector. The Augmented Dickey-Fuller (ADF) and Phillips-Perron (P.P.) tests were employed to verify the stationarity of spot and futures price series and determine the order of integration. The results of the Johansen Co-integration test revealed the existence of a long-run relationship between spot and futures prices. Around harvest time, producers or farmers face the risk of prices falling sharply. By hedging price risks using commodity futures contracts, they can secure stable prices and protect themselves from significant losses. The analysis of hedging benefits and basis risk further revealed that farmers participating in the futures market gained additional profits due to the price differences between the spot and futures prices of the selected spice commodities.
Description
Indian J Econ Dev, 2025, 21(1), 121-131
https://doi.org/10.35716/IJED-24446