Agricultural market of the Iran Mercantile Exchange is one of the key trading platforms of the exchange, providing a full array of trading instruments on agriculture products including spot, derivatives and financial apparatuses on Rice, Wheat, barley, maize, Saffron, Pistachios, Cumin seeds, Dates and Raisins. While IME provides fair access to market participants across a wide scope of beneficiaries from the land to the grocery, it helps the market function in an orderly fashion through sound price discovery based on supply and demand. The exchange mechanism enhances productivity, fosters chain efficiency and protects participants including farmers as to helping them with the listed warehouses dematerializing commodity to a tradeable security, which could be also accepted as the underlying asset in futures and options trades. Restoring the order on dysfunctional market of some agro-products are among other ramifications of exchange solutions for the sector.

Roots

The advent of the structured agriculture market dates back to formation of the agriculture commodity exchange when the Iranian parliament set out the launch of exchange auction trades of grains and cereals in the economic development plan in 2001 on which the government laid the foundation for establishment of the Iran Agricultural Commodity Exchange in 2004 before merging with Tehran Metal Exchange and demutualizing into a public joint stock company in 2007 by virtue of the new law of the securities and exchange to form Iran Mercantile Exchange.

Market instruments

The agriculture market of IME, building on years of experience and homegrown innovations keeping an eye on best practices, has introduced a number of trading solutions aimed at enhancing efficiency from farm to factory, from farmer to customer including but not limited to:

Spot Market

The listed grains including wheat, rice, barley, maize and oil seeds are offered by the producers on the exchange platform via warehouses across the production hubs. The admission of suppliers and listing of the commodity are carried out by the listed brokers. Agriculture products can be traded from 11:00 am to 12:00 each trading day on the exchange’s trading floor and electronic system. 24 hours before spot trades, the list of daily offerings are published on the IME’s webpage. Clients’ orders are routed to the trading system by the brokers’ panel. As soon as the order price of buyer matches with the seller’s the trade is done and it is posted to the clearing house for settlement and physical delivery.

Spot trades of the agriculture commodities of the IME, like other commodity groups, fall in three divisions of Cash, Forward and Credit trades based on settlement terms.

• In Cash trades, deal goes to prompt physical delivery after full settlement of trade value by the buyer through his broker. In this type of trade, the buyer must pay in full the deal value within 3 working days (t+3) from the initial matching date of the trade (t+0). Delivery is allowed to start from t+3 up until 7 calendar days therefrom from designated warehouses.

• In Forward trades, the buyer pays the value (at lowerthan-the-cash market rates) but receives the commodity at the maturity stated in the offering notice. The clearing house ensures commitments of all sides as the central counterparty and trade intermediary. It determines collaterals to be pledged by either party. This method can be used as a short term financing solution for producers who need cash.
• In Credits, the buyer receives the commodity then pays at the maturity. Collateral management is key to pretrade and post-trade operation in such trades.

Side Market Trades

Side market of the IME is a subsidiary of the spot market of the exchange, considered as lower market, in which non exchange-listed commodities, assets or properties can be registered and traded. Housing, land, machinery, fresh fruit, consumer goods are among such assets. The process of trades are easier and less formal. The clearing house of the exchange ensures the fulfilment of obligations.

Derivatives Trades

Agriculture market prices are influenced largely by climate change, seasonal drought, adverse or favorite weather conditions, agricultural water availability, domestic and international demand and food consumption. Therefore, the players of the industry may have different exposures at different times of the year including the harvest season when due to the crop condition there would be generally abundance or lower-than-expected crop offering. Here is the stage the instrument plays on and provides hedging for participants with different goals in the market. There are futures and options contracts on Saffron, Pistachios and Raisins with up to eight contract-month expiries available to farmers and traders who have risk exposures in the physical market or trade to gain from price movements and their strategies. The derivatives market of the IME hinges on the trade of the agriculture commodities with roughly 40% share from total trades of the exchange.

CDR Trades in the Financial Market of the IME

A Commodity Depository Receipt (CDR) or warehouse receipt in the IME is a negotiable financial instrument in the form of a document that provides proof of ownership of commodities that are stored in the listed warehouse, vault, or depository of the exchange for safekeeping under the exchange’s rules and regulations. It may also show transfer of ownership for immediate delivery or for delivery at a future date. The CDR can be used to settle expiring futures contracts delivering the actual commodity at the maturity. The CDR, traded on the exchange platform, is a unique instrument with multiple features and usages:

• It performs as the proof of ownership of agriculture commodity or other asset types certifying that the commodity is safely stored in an approved facility.
• Negotiable and tradeable on the IME’s electronic platform
• As the collateral and backing for futures and options underlying assets
• It helps the market keep the track of the underlying physical
• Due to standardized nature, it can be used to transfer commodity without physical movement.
• Quality and quantity checks’ pass before issuing of the receipt
• It boosts the confidence of market players, particularly the private sector.
• Acceptable as performance bond pledge for banks to grant shortterm loans

Commodity Funds

Exchange-traded commodity funds are one of the pioneering and effective trading instruments of our exchange. Commodity ETFs assist in regulating the agricultural market price of crops and products. They generally help broaden the spectrum of risk management products. Increasing the financial literacy of farmers is the other feature of this instrument while the commodity funds can turn agriculture market a lucrative trading option for investors. They are a trusted gadget for a risk-free investment in the international capital market. Many of the international and multi-national commodity trade corporations buy and trade fund units in order to both mitigate their risks and gain from investments. Diverse range of underlying commodities in the commodity funds ensures a liquid market for investors of variety needs with a guaranteed profit.

Function:

The units of the fund are offered on the subscription day which is announced to the public three days before launching of the funds. The orders are placed by the brokerage firms on behalf of the clients and the values are settled in the clearing house. The holder of the fund units are benefited both from the price increase and ….