The National Commodity & Derivatives Exchange will launch intention matching Futures contract in Shankar Kapas variety of cotton on November 29.

According to an NCDEX press note, unlike the sellers' option and compulsory delivery contracts that are in vogue in exchanges, Shankar Kapas Futures is an intention matching contract where both buyers and sellers accept or tender the delivery of executed contracts.

The settlement price for this cotton would be fixed on the average prevailing price in the four major markets of Rajkot, Kadi, Gondal and Bijapur.

The contract would be quoted in 20-kg lots and have a ticket size of Re 0.10. On the expiry of the contract, Shankar Kapas would be delivered from Rajkot, Kadi, Guntur and Akola.

Demand from growers, processors, exporters, and traders have encouraged the exchange to introduce the Futures contract in this cotton variety.

The press note said the existing Kapas contract of NCDEX has been well received by the trade.

Shankar Kapas is the benchmark cotton variety grown in India. As Kapas is processed down the value chain, raw material hedging becomes important, as the margins tend to get range-bound.

Shankar Kapas recorded a total production of over 90 lakh bales in the 2006-07 crop season. This year, the production estimates for this variety is about 115 lakh bales, valued at around Rs 11,000 crore (Rs 110 billion).

Although the figures indicate a bumper crop for India, prices have remained firm compared with the 2006-07 season, mainly due to the increased international demand for the cotton variety.