Saffron in Iran Commodity Exchange
Trading saffron in Iran’s commodity exchange aims to provide more price clarity, limiting dealers’ intervention to the market, and increasing farmers profit margin. Saffron farmers can buy or sell saffron in commodity exchange. Cash market is home to different products and is designed to trade them based on the supply and demand changes in the market as a parallel market. Saffron trades in commodity exchange become possible in 2018 spring, and saffron futures trading started 6 months later and are still in progress.
This blog post is dedicated to different aspects of saffron presence in the Iran commodity exchange. What is saffron cash market, saffron futures market, and saffron warehouses? and how do they work? what opportunities and challenges this trading method has? Read on to understand how cash market functions in the saffron industry.
Saffron trades in cash market
A commodity exchange is a well-established market in which specific products are traded. The traded products should be specifically approved products within this market. Some approved products include saffron, raisin, Cumin seeds (caraway), petrochemical, and chemical products. The securities and exchange organization are the supervisor entity that is directly responsible for the management and supervision of this market.
All stock-related activities are done through brokers. Therefore, to enter the market, you need to open an account with them.
In addition to trading saffron in this way, a professional trader can buy/sell saffron in futures market, too. Let’s see how saffron futures markets works in below lines:
Saffron futures market
Saffron futures contracts were introduced in 2018 and is becoming more and more popular among traders.
Saffron futures market functions like other futures markets. That is, not only you can make profits by buying at low prices and selling at higher prices, but also you can make profit while prices are lowering down. In this trading method, you should deposit a guarantee fee, near 1/4 of the total saffron value, you can buy and sell saffron, or in other word make profits (or lose money) using a fixed leverage. Saffron futures market can influence the physical or mercantile exchange (cash price in commodity exchange) based on players’ expectations or even be influenced by the fluctuations in this market. Normally, saffron releases three times, with 1-to-2-month interval, at different prices which are dependent on one another. Meaning, if the saffron price falls down at 4-month due date, so the same trend is happening for 2-month due date.
Generally speaking, saffron futures trading is a risky market for beginner traders and farmers. Even pro traders have experienced great losses in recent years, while it is an attractive for those who are open to take risks and are able to gain good profits.
What factors are influential in saffron commodity exchange price changes?
The answer is supply and demand, fundamental news, and sometimes intentional market manipulation! The changes in the supply and demand ratio fluctuate the price during different periods. When the supply is low and there is high demand for this product, the price increases because the product is scarce. The opposite situation, high supply, and low demand make the prices drop because there is excessive product supply in the market. In this market, people can do technical and fundamental analyses based on the available data.
Anyhow, the exchange market is a good place to present your saffron product if you are a saffron farmer or producer, or to trade saffron.
The main concerns in saffron stocks include:
- Too much complication of cash market structure for farmers and lack of training courses in this area
- The inflated fluctuations in saffron price due to manipulated supply and demand relationship
- Difficulties in risk management and protection of saffron futures price
- The absence of a clear pricing system based on traditional market supply and demand equilibrium (Price difference between traditional market and commodity exchange market.)
- The lack of synchronized information flow between manufacturing and commercial sectors in the import/export and consumption market
- Wandering capital entering to the market aiming to gain profit, which leads to drastic fluctuation
- The absence of product compliance standards and third monitoring equity in the warehouses
- No acceptance of other saffron types such as Poushal saffron (only Super Negin type is accepted)
What are the advantages of trading saffron in commodity exchange for farmers?
- The farmers should not worry about the risk of robbery and burglarize of physical saffron product, given that it is high valued.
- It has a good quick liquidity ratio
- Exchange warehouses have standard conditions to store saffron, making it an ideal choice to maintain the quality of saffron for longer times.
- Higher (selling) saffron price which brings more profit margin for the farmer.
As below you can see the list of active saffron exchange warehouses in current year:
- Rural association of Khorasan Razavi
- Zarrin Zafferan
- Vahdat jam
- Novin Zaferan
- Iranian Red Gold
- Modabber Toos
Please note that most of the time, there is a price difference between commodity exchange rates and traditional markets. Often, traded prices in the exchanges are higher/lower than actual prices in traditional market. Hence, these prices are not considered as a good criterion for pricing in international exporting markets.
In conclusion, we must say that every trading system in exchange framework has its own positive and negative aspects for its active players. Generally, if minor structural challenges are fixed in this mechanism, then it can be a good place to increase farmer profit and eliminate the market dealer’s influence. In addition to that, Iranian saffron manufacturing and export companies can supply the product through this route with more peace of mind.