Visible Supply

  

Categories: Accounting

There’s invisible supply, and visible supply. Visible supply includes the amount of a commodity that’s being stored and transported—any that's available for sale right now.

It’s true...people these days sell stuff that doesn’t exist yet. That’s what futures contracts are all about. For instance, a farmer might sell next year’s wheat this year via a futures contract. That wheat wouldn’t be a part of the visible supply.

Only this year’s wheat, whether it’s stored or in trucks, is the farmer’s visible supply. Likewise, the farmer could enter a futures contract with visible supply, writing in the for-sure guaranteed amount of wheat based on the amount that’s in storage right now. It’ll just be delivered...in the future. And no, Doc Brown has nothing to do with it.

The visible and invisible supply are important concepts when you think about supply and demand, especially for perishable goods. The visible supply is current demand, but the invisible supply (the expected but not-yet-available supply of the future) affects demand, too.

For instance, if there was a dust-bowl type situation, that would imply the invisible supply will be sparse, making prices for the current visible supply skyrocket, assuming a lack of a good substitution.

In non-Dystopian scenarios, options, futures, and forward contracts all have weird effects on current demand. The whole reason investors enter these contracts instead of just buying now is because they're forward-looking, which makes expected supply affect current demand. Plus, it can be great for both buyers and sellers to lock in prices. It’s harder to run a business with fluctuating prices, but futures contracts can provide stability in commodity costs for businesses.

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