Iran Launches First-Ever Saffron Futures Trading

EghtesadOnline: Iran Mercantile Exchange launched saffron futures trading for the first time on Wednesday to develop the market for derivatives with new underlying assets.

News ID: ۷۸۲۷۰۶

26 May 2018

The futures' expiration date is set for Sept. 11. Each contract has 100 grams of premium saffron as its underlying asset with a 3% daily fluctuation cap set on its price.

The first day had the futures open for trading at 12:30 p.m. with no fluctuation cap for 30 minutes to determine the initial price. The rest of the day, up until 15:30 p.m., had contracts trading with the usual caveats, IME reported on its website.

Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset at a predetermined future date and price. The asset can be anything such as a physical commodity or a financial instrument. Futures contracts detail the quality and quantity of the underlying asset. They are standardized to facilitate trading on a futures exchange, according to Financial Tribune.

Launching futures trade for saffron has many advantages for the market, including risk mitigation, trade guarantees by IME, low transaction costs and tax exemption. But the biggest advantage is pricing transparency and discovery, considering that IME trade will cut off the middlemen and directly involve the farmers with buyers.

Iran is the world’s biggest saffron producer and accounts for more than 90% of the global production. The country produces over 300 tons of saffron per year. Per capita consumption of saffron in the Middle-Eastern country stands at 1 gram. Annually, some 80 tons of saffron are consumed domestically.

Latest data show Iran exported over 160 tons of saffron worth $219 million during the nine months to Dec. 22, 2017, indicating a 26% and 33.33% growth in value and volume respectively compared with last year's corresponding period, ISNA reported.

Fifty-six countries bought Iranian saffron during the nine-month period. The UAE with 23 tons, Hong Kong with over 15 tons, Spain with over 14 tons, Afghanistan with over 5 tons and China with over 4 tons of purchases were the main buyers.

Yet, despite the near-total dominance in output, Iran accounts for around 60% of global saffron trade. And a part of that is sold under foreign brands, depriving Iran of the added value.

“About 34% of the saffron cultivated in Iran are labeled and sold by other countries,” the deputy head of National Council of Saffron, Gholamreza Miri, has been quoted as saying.

“The remaining 6% of saffron production take place in Greece, Afghanistan, India and Spain.”

Saffron exports are being further pressured due to huge loads of legal and illegal shipments of saffron bulb to neighboring Afghanistan over the past decade, turning the country into a rival of Iran.

“We need to block the illegal outflow of saffron bulbs and support domestic production and exports,” said the former head of the council, Gholamhossein Shafei, who is now chairman of Iran Chamber of Commerce, Industries, Mines and Agriculture.

The increasing presence of saffron at IME can bode well for producers and lessen or eliminate many of the limitations, especially if the red gold can make it to IME's export floor in the future.