Since the government has initiated a crackdown against black markets of essential commodities, the ex-mill prices of sugar have fallen by nearly Rs. 3,000, bringing a significant problem for those involved in speculation and gambling over sugar prices.
For those who never heard of satta and speculation of commodities like gold and sugar, there are two types of buying that take place in wholesale markets.
One is where deals take place at present prices and one is where forward buying and selling are done on speculative prices for the next month and the months after that. Forward contracts are always priced higher since these stocks are not picked up and are kept with mills.
Now while it’s quite similar to international futures trading, it’s highly unregulated, mostly based on rumors rather than actual activity in financial markets, and can quickly take an ugly turn as happened with the case of sugar this year. As retail prices spiked to Rs. 170-180 in a few months from Rs. 100 fueled by smuggling, hoarders and dealers started to speculate more and more in a vicious cycle.
When ex-mill prices touched their record high of Rs. 17,000 per 100 kg around September 5, 2023, dealers and speculators were shaking hands over forward contracts for October and November for prices as high as Rs. 18,000 to 19,000 per 100 kg.
But since the government initiated a crackdown, there has been a bloodbath in the black market. As per our sources, brokers had turned their phones off, forward contracts were closed for more than two weeks and markets nosedived as everyone acted for themselves. Even after the media reports and pressure have subsided and the Lahore High Court extended the stay order for millers after the recent hearing on September 20th, prices remained the same.
puts a number of big names in the hoarding business on the edge where most can even default and can go under for the good as not many of them will be able to bear this price differential of Rs. 2,700 to Rs. 3,000.
It also must be noted that not all involved are legacy hoarders, but it also includes wholesale dealers and people from other businesses who jumped in looking for a rally.
“People invested billions for October and November contracts buying at Rs. 18,000-19,000 per 100 kg and most of them are hoarders and investors looking for short-term gains because wholesale dealers avoid buying bulk stocks in such market environment.”
