A common approach adopted by analysts and researchers is to investigate the relationship between the marketing year average price and the stocks-to-use ratio. The stocks-to-use ratio (S/U) is often cited as an easy representation of the relationship between supply and demand. When the S/U ratios are low, the supply of the commodity is low relative to the demand. This is typically an indicator of high prices. When the S/U ratios are high, the supply of the commodity is high relative to the demand. Prices in these cases would be expected to be much lower.
The marketing year average price, as determined by the National Agricultural Statistics Service (NASS), is the weighted average of monthly prices of commodities surveyed during the marketing year, whereas the S/U ratio is computed as the ratio of ending stocks to total demand during the marketing year. The marketing year varies for different commodities. Corn and soybeans have marketing years from September 1 to August 31. Peanuts has a marketing year of August 1 to July 31.
We look at the relationship between S/U ratios and prices for corn and soybeans in figures 1 and 2. During the period of 2003-2021, we clearly observe the expected downward sloping relationship for corn and soybeans. As the supply increases, relative to the demand, the price of the commodity is lower. Figure 3 shows the relationship between S/U ratios and the price of peanuts, or more precisely the lack of any relationship between these two indicators. In other words, there is no relationship between current peanut prices and current measures of supply and demand.
The negative relationship in the corn and soybean market can be attributed to the size of the crop, significant number of spot market transactions and the existence of a futures market, with the latter two contributing to price discovery in the market. However, the similarity between corn and soybeans and that of peanuts is that all are grown in the south – yet that is where it ends. The peanut crop is small relative to these larger commodities, with sales largely done through contracts between the growers and a concentrated sheller market. The absence of a futures market is also a factor that limits price discovery and transparency which could account for the lack of responsiveness in prices to current market conditions. So, while S/U ratios are helpful in explaining prices of many commodities, the same is not true for the peanut sector.
Figure 1. Corn Marketing Year Average Price and Stocks-to-Use Ratios from 2003-2021
Figure 2. Soybean Marketing Year Average Price and Stocks-to-Use Ratios from 2003-2021
Figure 3. Peanut Marketing Year Average Price and Stocks-to-Use Ratios from 2003-2021
Attah, Festus, and Adam Rabinowitz. “Traditional Stocks-to-Use Ratios are of Little Value in Determining Peanut Prices.” Southern Ag Today 3(5.1). January 30, 2023. Permalink
