The dynamic nexus between futures basis in Indian and global agricultural markets

Purpose This study aims to explore the nuances of basis trading, a cornerstone strategy in global agricultural markets and necessitates thoroughly examining the interplay among futures basis values across diverse markets. Design/methodology/approach Focusing on cotton and barley, the authors use data from 2014 to 2023 to unravel the intricate connections between Indian and international grains markets. The analysis reveals a robust positive correlation in basis values across global markets, indicating the interdependence of these markets over time. The authors observe significant temporal variations in the structures of this interdependence, highlighting the dynamic nature of grain market relationships. Findings International cotton consistently emerges as a critical influencer in these dynamics, underscoring its importance in shaping global grain market trends. Given India’s significant role as a grain exporter, the implications of the study extend to the realm of adept risk management in the face of evolving global grain trading landscapes. This study examines the dynamic correlation between the basis trends of cotton and barley in Indian and international markets using the dynamic conditional correlation generalized autoregressive conditional heteroscedasticity model. Key findings reveal a significant positive correlation between similar grain types across regions, alongside notable volatility and occasional negative correlations across different markets. Research limitations/implications By understanding the nuances of basis trading and the interplay among basis values, stakeholders can make informed decisions to navigate the complexities of the global grains market and mitigate risks effectively. Originality/value This study is one of its kind in exploring the interrelation of emerging economy trading markets with global markets.