World Stocks-To-Use Ratio At Historical Low

By Ann Courtmanche, USW market analyst

Global ending stocks continue to spiral down (126 million metric tons for the 2003/04 marketing year) according to the USDA World Agricultural Supply and Demand Estimates, published in mid-November. Stocks haven’t been this low since 1981/82 when ending stocks equaled 112.5 million metric tons (MMT).

Even more significant is the stocks-to-use ratio, which measures stocks as a percentage of consumption. The world stocks-to-use value is 21.6% — down from 27.3% in 2002/03 and the lowest since the 1960/61 marketing year. Only the 1965/66 marketing year ratio came close at 22%.

Stocks are low for many reasons: global production has fallen for the seventh straight year; four of the five major producers — U.S., Canada, Australia and Argentina — had lower production in 2002/03; and former Soviet Union and Eastern European countries’ production is down for 2003/04. At the same time, world use has continued up steadily.

Such a low stocks-to-use ratio is significant because traditionally there is an inverse relationship between the stocks-to-use ratio and price. In 1996/97 world stock levels dipped to 28% of consumption, while prices rose to $285 per metric ton. Conversely in 1999/00 world stock levels rose briefly above 35% of consumption, and prices dove to $102 in December of 1999.

Comparing stocks-to-use ratios of the five major exporters — U.S., Canada, Australia, Argentina and the E.U. — is even more startling. For 2003/04, the top five exporters’ stocks as a percentage of world consumption equals 6%, as compared with 30% in 1960/61. The lowest stocks-to-use ratio in the past four decades was 5%, recorded in 1995/96.