India's largest commodity bourse -- the Multi Commodity Exchange -- on Tuesday futures trading in raw jute.

The rolling out of the raw jute futures contracts comes close on the heel of the successful launch of Kufri Jyoti potato futures contract from MCX.

According to a press statement from MCX, raw jute futures contracts of TD-4 -- Tossa variety grown in West Bengal, Assam, Bihar, etc -- general quality ex-Kolkata have been made available for trading for the months of August, September and October.

The contracts will result in compulsory delivery on the last working day of each month. The minimum lot size is 10 tonnes deliverable in bale form (1 bale = 150 kg) and the due date rate will be arrived at by taking the simple average of the last three days' spot prices from jute traders at Murshidabad, Nadia and North 24 Parganas and also from brokers and millers based out of Kolkata.

However, prices will be made ex-Kolkata price by adding freight, market fee and brokerage. This is a unique feature of the contract, as all earlier contracts in other exchanges used to derive the settlement price from the Kolkata market only.

Kolkata being a jute consumption hub, most of the mills are in and around the city limits, while producing/growing centres are located in far-away districts. Polling of spot prices from various places have broad-based the contracts to reflect demand and supply position of jute better.

The open position limit for members has been fixed at 10,000 tonnes or 20% of the open market position, whichever is higher, and for clients at 5000 mt throughout the life cycle of the contracts. The daily price limit on either up- or downside has been fixed at 4% initially.

"West Bengal is India's largest producer of raw jute followed by Assam and Orissa and, with an annual production of over 100 lakh bales in the country, we estimate good participation from producers, traders, processors and jute mills and also good open interest to meet the hedging need of the industry," said Joseph Massey, deputy managing director, MCX.

"The launch of the jute contracts underscores MCX's penchant for rolling out contracts that are tailor-made to suit the industry's requirements. We are confident of emulating the success achieved by launching Kufri Jyoti potato contracts in the case of raw jute futures too. These contracts will be of significant benefit to traders, farmers and jute mill owners, among others," he added.

Arun Seth, president, East India Jute and Hessian Exchange said, "Usually a futures contract can be used for hedging price risk. Since jute has an age-old established history of trading, mills and growers would be able to hedge their risk in such contracts traded across commodity exchanges like MCX."

Raw jute in the form of bales are processed in jute mills to produce hessian, jute yarn, bags, sacking and other products.