The bottom-line supply and demand number is stocks-to-use (s/u). I’ve long said stocks-to-use are the Readers’ Digest version of supply and demand, in that one number can tell us the bullishness, bearishness, or neutrality of a market’s fundamentals. I’ve also argued endlessly over the years with economists, my point being there should be a strong positive correlation between stocks-to-use and cash price. Given this premise, I’ve developed my system between the two for all three major markets (wheat, corn, and soybeans) with the r-squared[I]for all three near 100%. In all cases I’m using the cmdty National Cash Price Indexes (weighted national average cash prices from Barchart), and in wheat that means HRW, SRW, and HRS have been weighted to reflect US production of all wheat supplies. The Darin Newsom Analysis, Inc. (DNAI) stocks-to-use numbers are calculated at the end of every month, and then compared to the previous month and the previous year. The DNAI numbers may not agree with subsequent USDA report estimates, but that is understandable given the DNAI numbers are real (based on national average cash prices) rather than imaginary (based on…I have no idea).
WHEAT: The 2021-2022 combined daily average cash price for the three major wheat markets was $7.61 at the end of February, correlating to a s/u figure of 22.5%. The end of January showed s/u of 23.0% and the previous February 41.5%. The average cash price for US wheat increased for the 18th consecutive month, a situation that is expected to accelerate now that exports form Black Sea ports are shut off indefinitely. This won’t immediately ramp up demand from the US, particularly with US available supplies tightening, but we should see the global supply and demand situation stressed. The Chicago futures market will continue to be the best read on the global situation.
CORN: The 2021-2022 daily average of the NCPI though the end of January was calculated at $5.64, an increase of 12.0 cents from January. This put my end of February s/u calculation at 9.1% as compared to last month’s 9.2% and last February’s calculation of 11.3%. The 2021-2022 marketing year has now reached its midpoint, and the NCPI is quickly moving toward average cash prices registered during the 3-year US drought from the 2010-2011 marketing year through the 2012-2013 marketing year. The bottom line is demand remains strong for tight US corn supplies, and could strengthen further given the situation in Ukraine.
SOYBEANS: The 2021-2022 daily average of the NSPI though the end of February was calculated at $12.90, a 41-cent increase from last month and correlating to an end of month available s/u of 0.2%. This is unchanged from January, only because there isn’t much room for the s/u to move lower. The historic low is the 0.1% from 2013-2014 when cash soybeans showed a marketing year average of $13.18. Monday’s daily calculation of the NSPI came in at $15.88. Given this, and considering the 2021-2022 marketing year has only reached its midpoint, it is highly likely the average price of the NSPI moves above what was registered during 2013-2014 over the coming months indicating a record tight available s/u situation.
[i] R-squared is defined as “a statistical measure of fit that indicates how much variation of a dependent variable is explained by the independent variable in a regression model.” (Investopedia). In my world, it is how closely related two (or more) variables are, in this case national average cash price and stocks-to-use.