The Thai government’s plan
to launch a futures market
After the past government’s efforts to establish a Thai futures
market, the present government led by Prime Minister Thaksin
Shinawatra has concretely carried on with the plan. Five target
products to be initially traded through the system - rice, rubber,
tapioca, shrimp, and sugar. Shrimp is most ready to be traded
in the futures market, as it already has a central market at
Mahachai, Samut Sakhon. Tapioca and rice are also ready.
Futures are standardized contracts that
commit parties to buy or sell goods of a specific quality
at a specific price, for delivery at a specific point in the
future. They are not contracts made directly between buyers
and sellers of goods. The farmer who sells a futures contract
and commits to deliver corn in six months does not make his
commitment to a specific corn buyer, but rather to the clearinghouse
of the futures exchange. The clearinghouse stands between
buyers and sellers and, in effect, guarantees that both buyers
and sellers will receive what they have contracted for.
The usual trading of Thai agricultural
products is categorized into two ways: spot trading (direct
buying and selling with cash or credit) and forward trading
(a trade agreement reached exclusively between two parties
for delivery and payment in the future). Forward trading is
different from the futures market in that the fulfillment
of a forward trading contract largely depends on the credibility
and commitment of parties involved, while a futures market
contract has its fulfillment 100% assured by a uniform trading
system and supervision by a central regulatory body.
Since the two traditional trading systems
mentioned above are not efficient enough to satisfy the insatiable
demands of today’s commodities trade, the government is aiming
to launch a futures market in order to better alleviate losses
caused by price volatility, unpredictability of cultivation
and harvest of commodities, and further benefit all parties
concerned.
As for the potential of tapioca
products’ success in the futures market, firstly, Thailand
produces an adequate amount of tapioca, which can ensure delivery
set in specific time of future. Second, quality standards
of tapioca products have been well-established and should
facilitate the futures market trading. Third, as tapioca is
noted for its price fluctuation traders will be eager to use
the system to reduce risk. Fourth, information on Thai tapioca
is widely available and can be used for decision-making in
the futures market. Lastly, tapioca is in high demand both
from domestic and overseas markets.
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