INTRODUCTION

Oilseed crops have been the backbone of the agricultural economy of India from time immemorial. Today, these crops are cultivated on about 32 million hectares with total production of nearly 27 million tonnes. The major oilseeds grown in India are Groundnut, Rapeseed, Sesame, Linseed, Safflower, Castor, Sunflower and Niger.

Castor (Ricinus communis L.) is a non edible oilseed, belonging to the Euphorbiaceae family. It is generally grown for its oil yielding seeds. The Castor seed products have widespread application in many industries like Paint, Lubricant, Pharmaceutical, Textiles, etc. The Castor seed products are growing in importance because of their biodegradable and ecofriendily nature.

INDIAN SCENARIO

India is the largest producer of Castor Seed and Castor Oil in the world. In 2003 - 2004, the Castor seed production and acreage in India was 5.8 lakh tonnes and 6.25 lakh Ha, respectively. India contributes about 52-53% of world production. Table-1 shows the production and acreage statistics for the last four years. The figures in the brackets indicate the share of India's Castor seed production in the world

TABLE:1 PRODUCTION AND ACREAGE: INDIA

The major states producing Castor are Gujarat, Andhra Pradesh, Rajasthan and Karnataka. The following pie chart shows the share of the various states for the Castor production in India. Castor production is mainly concentrated in area of Northern Gujarat in districts of Sabarkantha, Banaskantha, and Mehsana etc. The major trading centres in Gujarat are Disa, Palanpur, Patan, Kadi, Dhanera and Sidpur. The major trading centres in Andhra Pradesh are Jedcherla and Yemignoor.

FIGURE:1 SHARE OF DIFFERENT STATES IN INDIA'S PRODUCTION

India exports nearly 80% of its production. It exports mostly in the form of raw Castor oil to Europe (32%), USA (18%), and Japan (20%). Though India exports in such large quantities, it is only a price taker and not a price setter. It has been observed that India has huge potential in value added derivatives of Castor as only 12% of the exports are in the form of value added derivatives. India is unable to export because of lack infrastructure. The export figures for Castor Oil are shown in the Figure-2

FIGURE:2 INDIAN CASTOR OIL EXPORTS

GLOBAL SCENARIO

The average world production for the last four years for Castor seed has been 12.22 lakh tones. The major producing and exporting countries are India, China and Brazil. The major impor ters in the world are Europe, USA and Japan. The following chart depicts the fluctuating world production in the last four years.

FIGURE:3 WORLD PRODUCTIONS OF CASTOR SEED (2000-03)

AGRONOMICAL SUITABILITY FOR CASTOR SEED

Castor is a perennial crop but grown as an annual for economic purpose. It is cultivated mostly in the arid and semi arid regions in the world. It thrives in wide range of soils and requires well distributed rainfall of 500 - 600 mm throughout the crop period. The crop duration is 4- 5 months. In India it is sown in May to July and harvested from October to April. The arrivals in the market yard start from October onwards. It is grown as a sole and mixed crop depending on the region.

VARIETIES TRADED OF CASTOR SEED

In common trading parlance, the most commonly traded Castor varieties are the Gujarat small seed and Andhra big seed. The Gujarat seed has oil content up to 48 - 50% which is more than the Andhra variety. Gujarat contributes nearly 70% of the Indian Castor production hence, Gujarat small seed forms the basis of the contract.

USES OF CASTOR SEED

Castor oil and its derivatives form a major ingredient in many industries like :

Paints, Inks & Adhesives Lubricants Pharmaceuticals Textile & Paper Chemicals Plastics & Rubber Perfumeries, Cosmetics Electronic & Telecommunication

Castor contains 85-90% of naturally occurring Ricinoleic acid which makes it economically important. Ricinoleic acid provides the viscosity and density to the Castor oil. The Castor cake is used in agriculture as organic manure as it is a rich source of nitrogen. Castor oil is also widely used for its medicinal properties. It has been found lately that it can help cure Cancer and AIDS.

VALUE CHAIN

The following figure shows the value chain with different layers in the market structure. The chart clearly indicates that the value chain is long and involves many intermediaries. These intermediaries prevent efficient price discovery and price dissemination.

FIGURE4: VALUE CHAIN FOR CASTOR INDUSTRY

PRICING PATTERN

The price of Castor Seed is influenced by climatic conditions, prices of Castor Oil in the world trade, production in India and Rotterdam prices in Europe. The following chart indicates the spot prices of the Castor seed for the last 3 years. The chart clearly indicates that the commodity price is volatile.

RATIONALE FOR THE CASTOR SEED CONTRACT

Some of the main reasons for introducing the futures contract in castor seed are:

Fluctuating Production of Castor seed in India: The following chart shows the fluctuating production of Castor in India. The market par ticipants like the farmers, traders, oil millers, exporters and industries which produce value added derivatives face an eternal price risk due to fluctuating production. Hence it is imperative to introduce a hedging mechanism for efficient price discovery and price dessimation. FIGURE:5 PRODUCTION TREND OF CASTOR SEED IN INDIA (90-91 TO 2001-02) Volatile Commodity: Market research done by NCDEX shows that the Annualized Price Volatility is 15%. The following chart indicates that Castor is highly volatile. FIGURE:6 ANNUALISIED PRICE VOLATILITY OF CASTOR SEED Wide usage of Castor products: Castor Oil and its derivatives are used as raw materials in many industries like Paint, Lubricant, Textile, Pharmaceutical etc. They form large par t of the variable cost for the production of the above products. Any negative fluctuation in the price of the raw material may erode their profits. Hence, an efficient hedging mechanism is essential to combat the price risk. Large number of market participants: As shown in the Figure: 4, there are many intermediaries in the value chain. These intermediaries prevent efficient price discovery and price dessimation for the farmer. NCDEX would like to become the platform for the efficient dessimation of market intelligence, so that farmers take informed decisions. Limited hedging options: Due to lack of transparency in the unorganized forward markets, there is counter par ty risk, default and quality issues. Hence a genuine hedging tool needs to be put forth for the Castor industry. More than 80% of production is exported: India exports nearly 80% of its production and is highly vulnerable to the world prices set by other trading countries. Hence, there is a need for futures contract to hedge their price risk.

CASTOR SEED CONTRACT ON NCDEX

The Castor seed contract on NCDEX has been designed to fulfill the needs of all the participants in the Castor industry. The contract replicates the norms in the underlying physical market as far as possible. The basis for trading is the Gujarat small seed which is the barometer for castor seed prices across the country. The quality test for Castor seed in the physical markets tends to be based on visual inspection and is done by par tial authorities. NCDEX has made the testing procedure rigorous by insisting on certification by independent international quality assayers.

FUTURES CONTRACT FOR CASTOR SEED

NCDEX INFORMATION

The NCDEX homepage http://www.ncdex.com will carry real time price data. In addition the site will regularly provide historical data on settlement prices, daily and historical data on settlement prices, daily and historical highs and lows for each contract. It will also provide information on changes in contract specifications, details of members, market timings and exchange holidays.

NCDEX will make available historical data for research purposes through different electronic media.

The daily quotes will also be disseminated through different information service providers. These details will also be available on the website.

Disclaimer :

The brochure has been prepared for general information purposes only. While NCDEX has made every effor t to assure the accuracy of the information contained, herein, any affirmation or fact in this brochure shall not create an express or implied warranty that any example or description is correct. This brochure is made available on the condition that errors or omissions shall not be made the basis, for any claims, demand as or cause of action.