Series 3: 6.1.4.4. Stock-to-Disappearance Ratio

Taken from our Series 3 Online Guide

6.1.4.4. Stock-to-Disappearance Ratio

The most important early indicator of both supply and demand for storable agricultural commodities is the stock-to-disappearance ratio. The stock-to-disappearance ratio is the proportion of stock remaining unsold at the end of a crop year as measured against the total amount used.

Disappearance is the amount of stock sold during the crop year. Ending stock is the surplus stock at year’s end, which becomes the beginning stock for the forthcoming crop year.

ending stocks = beginning stocks + domestic production + imports – disappearance

The stock-to-disappearance ratio indicates the strength of current demand at current prices and signals an increase or decrease of next year’s production. A high stock-to-disappearance ratio indicates low demand and lower futures prices. In contrast, a low ratio indicates high demand and higher futures prices. By comparing the disappearance ratio and that crop’s average price to the price and disappearance ratios historically, one can get a rough initial estimate of next year’s crop prices.

Example: In the 1990s, corn prices ranged between $1.50 to $3.00 per bushel, and the disappearance ratio in the U.S. from 25% to 35%. Beginning in about 2005, the emergence of corn as a source of ethanol caused its de

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