A new research report from regional cooperative Growmark challenges the commonly accepted notion that ending stocks are a primary determinant of agricultural commodity prices.
“Stocks and the Stocks-to-Use Ratio: Are they meaningful for price determination?” shows that stocks are inversely correlated with prices, but that the correlation occurs within a limited price range, meaning that stocks do not dictate the extent of the price moves. “Stocks do not influence overall price levels,” according to Kel Kelly, Growmark economic and market research manager, and author of the report. Additionally, he shows, the correlation is often a reversed one: changes in prices cause changes in stocks.
The study indicates that fear of running out of stocks is likely based more on perceptions than on reality, as there is not much evidence that the marketplace takes strong action to compensate for missing supply in years of low production. Great efforts are made to show how overall price levels, as well as price volatility, are largely driven not by the fundamentals, but by the quantity of money spent in commodity markets, which in turn are dictated by commercial operators and (mainly) investors accessing additional spending power from the central bank.
See the "Stocks and Stocks-to-Use Ratio: Are they meaningful for price determination?" report by clicking here.