Visible Supply

Visible supply refers to the goods and commodities readily available to be bought or sold. It also includes the number of commodities and goods on the way, in storage, transit, or getting loaded at a different place to reach the market.

This concept is important as it offers a precise amount or value of goods and products available for trading purposes, and there is a minimum or no waiting period associated with it. It also plays an integral role in predicting future shortages and surpluses with the changing market dynamics. It elaborates on the supply side of the market.

• Visible supply is the physical stock of goods, commodities, or manufactured products available for trading, including the stock on the way or held for storage or transit.
• The opposite is an invisible supply used in long-term futures contracts upon the settlement and delivery date.
• It is studied to understand the future shortage and predict potential risks and loopholes in supply chain management.
• Businesses and investors can incur heavy market losses without a proper understanding of visible supply.

Visible supply refers to the physical stock of any goods, commodities, or products available for trading. It accounts for the available stock and includes the stock held in storage facilities, en route to the market, or somewhere in transit. It helps the owner understand the future market scenario, price movement, and impact of shortages and surpluses.

Any business with a highly visible supply chain, well-procured logistics, and management can ensure that they are simultaneously covering the demand of every possible and potential customer in the market. They can also regulate the price movement by hoarding or taking price advantages in high-demand scenarios. However, it also depends on the type of underlying commodity, as oil and wheat commodities are generally bought through forwards, options, and futures contracts.

When it is low, businesses lack market penetration. Investors who study and can predict the right time of falling or increasing demand for commodities can register good returns and make a profit from commodity trading. Businesses can regulate production based on their visible supply when there is low demand to use the funds in other operations. At the same time, if the future demand is predicted to be high, businesses can increase their visible supply.

Check out these examples to get a better idea:

Example #1

Suppose Vincent is a farmer with a long wheat field. Every year he sows and harvests wheat and sells it in the market. Vincent has also opened a small wheat shop in the local market, which is ninety kilometers from his storage facility and wheat farm. One day, he comes across the news that there is a heavy prediction of increasing wheat demand in the next two weeks.

Vincent wants to check his visible supply chain package. He checks his shop and finds that he has 450 kg of wheat present and readily available for selling in his shop. Vincent also includes another 333 kg of the wheat present in his storage facility and sums up the other 180 kg of wheat on its way to the shop from his storage.

By this calculation, Vincent has a visible supply of -

450 + 333 + 180 = 963 kg of wheat.

It is a straightforward example directly related to agricultural commodities. However, in the real world or the securities or bond market, there can be other aspects that need to be considered. Also, Vincent cannot include the wheat crops he has yet to harvest from his farmland.

Example #2

Regarding futures contracts, both visible and invisible supply can help a trader depending on the delivery date and time of the futures contract. Suppose a farmer who is also a commodity trader purchases a futures contract to sell rice. As per the short-term contract, the price and date of delivery are decided, and in the next three months, the trader needs to deliver 117 kg of rice.

The trader has a visible supply chain of 135 kg currently stored in his house, and on the settlement date, he does deliver them. In contrast, if the futures contract had been long-term, the trader could have sown the crops and harvested rice by the delivery date and eventually be ready with the supply. But in this case, it would have been considered an invisible supply.

• A high visible supply is appreciated in a high-demand market. But a low value will not be accepted, and thus, the business or seller can lose the consumers.
• Commodity traders efficiently monitor the visible supply to understand and predict price changes and supply chain management.
• It helps in predicting the future price movement of goods or commodities.
• If the visible supply is low, it can hike the future prices of the underlying commodity. Conversely, if the visible supply indicates a surplus, it may lead to a future price decline.
• Commodity traders use it to make a profit while trading in futures contracts.
• Market analysts, especially in the case of agricultural commodities, study the visible supply to understand the future shortage or surplus of the underlying commodity.

• Visible supply is goods and commodities available for trading. In contrast, invisible supply accounts for the commodities that will be available upon the settlement date of a futures contract.
• It also includes the commodities en route or stored in transit from a facility. In comparison, invisible supply is the stock that is not segregated, kept aside, or quantified.
• Visible supply is the known volume of physical stock. On the other hand, invisible supply refers to the unknown amount of commodities.

This article has been a guide to what is Visible Supply. Here, we explain the topic with its examples, impact, and differences with invisible supply. You may also find some useful articles here -

• Joint Supply
• Supply Function
• Supply Shock