What Is the National Commodity & Derivatives Exchange (NCDEX)?

The National Commodity & Derivatives Exchange (NCDEX) is a commodities exchange dealing primarily in agricultural commodities in India. The National Commodity & Derivatives Exchange was established in 2003, and its headquarters are in Mumbai. Many of India's leading financial institutions have a stake in the NCDEX. As of September 2019, significant shareholders included Life Insurance Corporation of India (LIC), the National Stock Exchange of India Limited (NSE), and the National Bank for Agricultural and Rural Development (NABARD).

KEY TAKEAWAYS

  • The National Commodity & Derivatives Exchange (NCDEX) is a commodities exchange dealing primarily in agricultural commodities in India.
  • The National Commodity & Derivatives Exchange is located in Mumbai but has offices across the country to facilitate trade.
  • Exchanges like NCDEX have also played a key role in improving Indian agricultural practices.
  • Barley, wheat, and soybeans are some of the leading agricultural commodities traded on the NCDEX.

Understanding the National Commodity & Derivatives Exchange (NCDEX)

The National Commodity & Derivatives Exchange (NCDEX) is one of the top commodity exchanges in India based on value and the number of contracts. It is second only to the Multi Commodity Exchange (MCX), which is focused on energy and metals. The National Commodity & Derivatives Exchange is located in Mumbai but has offices across the country to facilitate trade. The exchange featured futures contracts on 19 agricultural commodities and options on five agricultural commodities as of March 2019. An independent board of directors runs NCDEX, and they have no direct interests in agriculture.

India is a world power in terms of agriculture. It is one of the largest producers of wheat, rice, milk, and many types of fruits and vegetables. The size of India’s agriculture sector is somewhat hidden internationally because the populous nation consumes much of what it produces. However, increasing farm-level productivity is making India's strength in agriculture more apparent. The NCDEX plays a critical role in India's growing agriculture sector.

Benefits of the NCDEX

In establishing and maintaining an online futures market for crops, NCDEX has helped increase market transparency. The exchange assists Indian farmers in the price discovery process. The NCDEX enables them to price their goods more accurately even if they are not active in the futures market. Middlemen, who are known as commission agents, previously controlled much of the market information in India. The introduction of online commodity exchanges like NCDEX reduces the cost of price data for farmers by cutting out the middlemen.

Exchanges like NCDEX have also played a key role in improving Indian agricultural practices. By standardizing the quality specifications of various products through contracts, the NCDEX has raised quality awareness. Farmers in India increasingly focus on testing requirements and enacting farming practices that result in consistently high-quality crops.

The NCDEX is still young by some standards, but traders and large market participants are already using contracts to hedge and speculate. This trend is likely to continue as India's agricultural sector grows in terms of productivity and exports.

Examples of Commodities on the NCDEX

Barley, wheat, and soybeans are some of the leading agricultural commodities traded on the NCDEX. The exchange also hosts some contracts that are global benchmarks for commodities like coriander. NCDEX is seen as a significant source for information on spices, as India is the leading producer and consumer of spices.