Price relationship and volatility dynamics in soybean spot and futures markets in India

Abstract:

The research paper entitled "Dynamic Study of Futures Trade of Soybean in India" aims to investigate the correlation between Soybean spot and futures prices, as well as the characteristics of price volatility in selected Soybean markets from 2012 to 2021. This study utilized secondary data sourced from NCDEX for futures prices and AGMARKNET for spot prices, focusing on the principal APMC markets of Indore, Ujjain, and Latur. To analyze the relationship between spot and futures prices, Karl Pearson’s correlation coefficient was applied, while the ARCH-GARCH model was utilized to evaluate price volatility and its persistence. The findings indicated that the average Soybean futures price stood at ₹3,870.57 per quintal, whereas the average spot prices were ₹3,654.61, ₹3,593.99, and ₹3,724.70 per quintal in Ujjain, Indore, and Latur, respectively. A robust positive correlation was identified between futures and spot prices, with correlation coefficients of 0.93, 0.95, and 0.94 for Indore, Latur, and Ujjain, respectively, all significant at the 1 percent level, suggesting a high degree of market integration.

The ARCH-GARCH analysis indicated a high level of persistent volatility in the spot markets, with α+β values of 1.14 for Indore and 1.22 for Latur. Conversely, the soybean futures market exhibited an α+β value of 0.75, reflecting a relatively stable and less persistent volatility, with shocks diminishing over time. In summary, the study underscores the strong integration between Soybean spot and futures markets, while the persistent volatility in spot markets emphasizes the necessity for effective price-risk management and hedging strategies for farmers, traders, and other market participants.