Guidance Price for Natural Rubber

Rationale: Agricultural raw material producer evaluates prices by comparing them to some reference price that the producer has in mind. This comparison gives the producer an idea of whether a certain Price is “good” or “bad”. Since commodities are traded on exchanges, no single person or organization sets their prices. In actuality, a variety of economic factors and catalysts influence and shift these commodities’ prices on a daily basis. Commodity prices are primarily determined by the forces of supply and demand in the market. Particularly in the short term, weather has a huge impact on price changes for agricultural or crop-related commodities. The price of a commodity will directly change if the weather has an impact on supplies in that area. Futures contracts are used on exchanges to trade commodities. These agreements require the holder to buy or sell a commodity at a specified price on a future delivery date. Futures contracts can differ from one another. In actuality, the specifics vary based on the commodity being traded. The market price of a commodity is frequently its market futures price when it is quoted in the media. The spot price, also known as the cash price, is the current actual price for the commodity; it differs from the futures price. The cash price of commodities is known as the spot price, on the other hand. On the day of purchase, this is what traders actually paid for the commodity. It is necessary to adhere to the global level reference price for commodities in order to analyse price changes because commodity prices are influenced by global supply and demand imbalances and are typically expressed in U.S. dollars. Fair price for rubber seeks to ensure that there are no unexpected changes in the prices on the local market, barring any external influences.

Objective: in order to establish a reasonable guidance price for natural rubber trading on the local market, this study will analyse changes in the prices of rubber on the global market. As a result, producers and buyers can confidently produce and purchase goods knowing that their prices will be in line with those of internationally trade goods.

Methods: To prepare and RSS3 rubber guidance price, Physical market price of RSS3 traded at the Bangkok, Thailand was selected. Singapore Commodity Exchange was selected to observe the suitable rubber futures prices for RSS. Similarly, those markets were selected to obtain the physical and futures prices of TSR20. For Latex prices, it was decided to obtained only the physical market prices of latex rubber from the Malaysia. This study also observed the average freight cost paid to import rubber to Sri Lanka.

Result: Both the physical market of Bangkok (about 90%) and futures market of Singapore (about 80%) show a strong correlation with RSS 3 price behaviour of Colombo Auction. Table 1 shows annual average of RSS 3, Latex and TSR 20 prices in the selected market for the year 2021 and 2022.

Table 1: Annual average of prices of rubber grades in different markets and their CIF values.

The estimated average freight cost for imported kilo grammes of rubber was LKR 30. The difference between the average CIF value and the estimated import value, which was calculated by adding FOB prices and the freight cost, was substantial. This is primarily a result of the categorisation of rubber grades and annual changes in freight costs. The estimated transportation cost from the farmer to warehouse was LKR 15 per kg. Therefore, this difference is about LKR 15 per Kg for the international and local transport.

Accordingly, the guidance price formula for RSS 3 for farm gate price as follows;

FOB _Bangkok-RSS = Rubber RSS 3 price in USD at Bangkok market

Futures _SICOM-RSS = Rubber RSS 3 price in USD at Singapore market

Ex _USD = USD Dollar to LKR exchange rate;

Ex _SGD = Singapore Dollar to LKR exchange rate;

The guidance price formula for Latex as follows;

FOB _{Malaysia-Latex} = Rubber Latex price in USD at Malaysia market

The guidance price formula for TSR 20 as follows;

FOB _Bangkok-TSR = Rubber TSR 20 price in USD at Bangkok market

Futures SICOM-TSR = Rubber TSR 20 price in USD at Singapore market

Conclusion and Implication: The average prices of respective physical and futures market prices can be used to determine the guidance price of rubber farm gate price. Freight cost and any other taxes cannot be used due to their variations and such statistics should be further investigated before applying in the formula.

The guidance price should be updated every week and can be found on the website of Rubber Research Institute of Sri Lanka (RRISL). RRISL updates the guidance price of rubber every Monday.

View Guidance Price for Natural Rubber (rrisl.gov.lk)