This research paper titled ‘Commodity Future Trading and Cointegration of Turmeric Markets in India’ discusses the role of futures market in determining the prices of commodities based on demand and supply, and the importance of understanding the relationship between different markets’ prices. It specifically analyzes the efficiency of commodity futures of turmeric traded in NCDEX for 2016-2022 and the cointegration of the Nizamabad, Erode, Sangli, and Cuddapah Markets of India.
The paper starts with an introduction to the commodity market and its significance in the Indian economy. It then delves into the specifics of turmeric production in India and its global standing. The paper also provides a literature review of various studies related to commodity futures and their impact on spot prices.
The objectives of the study were to determine the relationship between the selected markets in commodity futures, to determine the relationship between spot and future price of the commodity markets, and to identify the arbitrage opportunities in the futures market.
The study used secondary data collected from the NCDEX website and Agmarknet website for the years 2016 to 2022. The data was collected on a daily basis and modified by adding 0 in the no trading days.
The results of the study showed a dynamic relationship between the spot and the future prices of the commodity futures and also between different markets. One market’s price was found to influence another market’s price. However, the study found that there was not much difference between the mean and standard deviation in the opening and closing price of future contracts therefore, not much arbitrage opportunity exists. The low arbitrage opportunity is nullified by the transaction cost.
The study concludes that there is a dynamic relationship between the spot and the future prices of the commodity futures and also between different markets. One market’s price was found to influence another market’s price. Some markets will have no influence on other market’s price.
The limitations of the study were that it only examines the Turmeric product and the prospect of arbitrage is not present in the case of turmeric, it cannot be extrapolated to other commodities.
The scope for future research includes further research on major agricultural commodities and other issues like if commodity future market is fairly priced or not can be studied.
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