Stocks-to-Use Ratio Updates for Corn, Wheat, Rice, Soybeans, Cotton and Sugar
Projected stocks-to-use ratios (in %) for Corn, Soybeans, Wheat, Cotton, Sugar and Rice for the 2012/13 Marketing Season:
Note that the above numbers are projected for the 2012/13 marketing season “under normal weather conditions” and are highly subject to change. The 2012/13 marketing season for corn and soybeans begins September 1, 2012 but varies by commodity type.
Stock-to-Use Ratio Charts
Twice a year, I try to update my ongoing stocks-to-use ratio charts using the latest available data on U.S. and global crop supplies. The stocks-to-use ratio reflects the excess of supply against demand. It is calculated by dividing the ending stocks of a commodity by the total demand of that commodity and is one of the most useful statistics that we have for measuring supply and demand of food commodities. Of course, these ratios are only as good as the data that goes into the calculations, but in our electronic information age these numbers are hopefully improving all of the time.
Each commodity has its own stock-to-use “norm.” A wheat stocks-to-use ratio under 20 percent has previously led to high prices. Corn has risen when the ratio has fallen below 12 percent. Historically, soybeans have risen in price when the stocks-to-use falls below 10 percent. A normal cotton stocks-to-use ratio is around 33 percent. So, if you know the agricultural commodity’s norm then you can anticipate a price rise or drop for that commodity based upon its deviation up or down from that norm. A high stock-to-use ratio means a lower price for the commodity and vice versa. Keep in mind that the market reaction to supply scarcity is nonlinear. When stocks are low, price becomes very sensitive to disturbances in supply.
FAO Stocks-to-Use Ratios (in %) for Cereal, Wheat, Coarse Grains, and Rice:
(Updated May 2012)
1) The FAO cereal index includes wheat, rice, and coarse grains. 2) Coarse grains include maize, sorghum and barley.
Comments about current supplies based on data in Table 1 and Table 2
First of all, the U.S. agricultural commodity markets are in a state of transition because of the ethanol policy use mandate which has eaten up 40 percent of our corn supply in recent years. The resulting sudden rise in corn prices has contributed to more corn acres here and around the globe. This has resulted in higher domestic agricultural commodity prices for our nation which is historically a global agricultural exporting powerhouse for the world. Consequently, we have very high soybean and meat prices and our nation has become somewhat less competitive on the global agricultural export market.
In the U.S., the most recent surprise was that the USDA expects corn stocks to end much higher than anticipated this year which could possibly result in corn prices that don’t cover input costs. The other main story this season is the low soybean planting expectation, stocks level, and resulting high price. If this season’s predictions prove correct, ending soybean stocks will hit an all time record low. Remember that biodiesel production has risen this past year also adding to soybean demand for biofuel. As for the other commodities in the U.S., wheat and cotton are at a comfortable levels, and rice production is down.
For global food security, rice and wheat are most important and the current global stocks-to-use ratio’s of each are comfortable. Global rice production is outpacing consumption for the eighth consecutive year. The next most important food crop is corn and its level is “precariously” low according to the FAO, the reason being the U.S. policy-driven artificial demand use. Also, because of high corn prices, wheat, soybeans, and other crops are being used globally as feed substitutes. World dairy and meat production is also expected to expand by two percent or more this year. Global aquaculture output is to increase nearly six percent.
Globally the trend is upwards for agricultural production in the BRIC nations and around the world. The Ukraine, China, India, Eastern Europe, and Latin America are increasing their agricultural output.
How’s that for discrediting the Malthusian prophets of the past decade and longer? As of 2012, the world is continuing to advance in its capacity to feed its growing human population.
Threats to this Current Upward Trend in Production
That is not to say that there are no threats to our current upward production trend. The main threats to global food supply stocks that I see are:
- Biofuels policies demanding ever-greater shares of production.
- Weather uncertainties, both normal and climate-change driven. For example, the Midwestern United States hasn’t had a major drought in many decades.
- Oil and fossil fuel prices and availability leading to higher input costs which could make planting/replanting unaffordable in some circumstances.
- Superweed emergence rapidly bringing an end to the easy years of industrial production requiring little human labor.
- Deteriorating economic conditions in many nations.
- Water availability and pollution, aquifer depletion, soil loss, and other negative impacts of this anthropocene era of which agriculture is no minor player.
Common Goal to Improve the Monitoring of Global Food Stocks
In 2011 the G-20 set goals to improve global transparency and accuracy of global food supply stocks through the use of cell phone programs such as AMIS, believing that uncertainty breeds price volatility. Through programs such as this, even the smallest producer in the developing world can have access to trade. The GEO Agricultural Monitoring Task and FAMIS are also working towards this goal of crop supply awareness.
U.S. Grain Storage
In 1996, the U.S. Congress ended government grain stock storage subsidization to avoid a large buildup of stocks during times of weak prices. Large government stocks were a burden to producers because their presence put a cap on price rallies in the market. Increasing food sector efficiencies have made up for less storage and now in recent years storage capacity has grown again. According the the USDA, off-farm commercial grain storage capacity in the U.S. reached a new all-time high in 2010, totaling 9.74 billion bushels, up 15.7 percent from 2001. More than 40% of the nation’s grain storage is located off-farm, at country elevators, grain terminals, ports and processing plants. In addition, many farmers have added shiny new grain bins to their properties, giving them the advantage of timing when they sell their crop. I have personally observed this in my travels across Kansas and Nebraska the past several years.
Along with increased crop production trends in the BRIC nations in recent years, so also transport infrastructure of roads, rail, ports, super sized dry bulk shipping vessels, and storage of grain and foodstuffs is increasing around the world. This helps nations increase their own food security and protect themselves from food price volatility. Analysts believe that global grain storage is much higher in recent years. Food insecure nation Saudi Arabia is increasing its storage capacity to provide a years worth of wheat needs, for example. The Ukraine, China, and many other nations are in the process of expanding their grain storage facilities. The International Grain Council estimates that China held 114.6 million tons of grain at the end of 2010/11, more than the combined total of 104.5 million tons held by all the major exporters.