Price discovery in mustard seed and mustard oil futures markets, India

Abstract

Among different edible oilseeds grown in India, mustard occupy prominent place due to larger portion of Indian population are consuming, it as vegetable oil. Besides other factors, price of oilseed is play an important and highly influencing factors to the farmer's decision regarding the acreage allocation under oilseed crops. Present study attempts to assess the future and spot price linkages for mustard seed and mustard oil in various selected markets. Present study was based on secondary data and it was analysed using co-integration technique. The significant coefficient of at least one error correction term confirmed the results of co-integration between spot and future prices of mustard seed and mustard oil. The results of Vector Error Correction Model (VECM) revealed that the coefficient of the error correction term was negative and significant in the case of spot market for mustard seed and mustard oil in the selected markets. This implies that spot prices are stable in the long-run and any deviation in their prices due to external shocks that occurred in the short-run was well adjusted by the market forces over time. The model also revealed the existence of unidirectional short run causality in the selected market of mustard seed except Sriganganagar market. This phenomenon of price convergence for the crop clearly depicts that farmers would be able to effectively mitigate the price risk.