Stock-to-Use Ratio and Price of Rice: Deciphering the Relationships

Abstract

The stock-to-use ratio (STU) is a widely utilized indicator to assess market conditions and forecast price movements for agricultural commodities. However, before drawing any conclusions, it is essential to empirically investigate the relationship between STU and commodity prices. Using rice as a case study, this research examines the empirical linkage between rice prices and STU, both collectively and individually across 16 leading rice-producing and consuming countries. To do so, the study first employs the panel vector autoregression approach to capture the dynamic interrelationships in a panel data setting, followed by vector autoregression estimation at the individual country level. The results suggest an inverse relationship between rice prices and STU: higher rice prices are associated with lower STU levels (i.e., higher scarcity), and vice versa. Furthermore, the Toda-Yamamoto Granger causality tests indicate that monitoring the STU levels of a select group of influential countries can yield significant insights into global rice export price dynamics. In addition, the analysis highlights the pivotal role of urea fertilizer in maintaining the stability of global rice prices. These findings are particularly relevant in the context of strong government intervention in managing rice stocks in several key rice markets.