The bottom-line supply and demand number is stocks-to-use (s/u). I’ve long said stocks-to-use is the Readers’ Digest version of supply and demand, in that this 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 the five major markets (corn, soybeans, and three major wheat classes) with the r-squared[I]for all near 100%. Recently I’ve switched to the month end calculation of the DTN National Price Indexes based on a longer track record, including the drought years of 2010 through 2012. Using this system I can pull data any day of the month, but by using the end of month number it gives us a picture of the stocks-to-use situation at the end of each month, a system that should smooth out the wide changes seen at the end of a marketing year. It also puts a spotlight on what I call the Marketing Year Misdirection, meaning supply and demand is a constant flow rather than a hard line drawn between old-crop and new-crop.
CORN: The national average cash price for corn was calculated at $6.97 on October 31, 2022, a price that correlates to an end of month available stocks-to-use of 8.3%. The end of September showed $6.79 and 8.4% with last October coming in at $5.51 and 10.3%. October was an interesting month as more than 60% of the 2022 crop was harvested during the month yet available stocks-to-use tightened. If we add in US export inspections were roughly 72 mb for the month, all while national average basis firmed by 4.0 cents during October puts the spotlight on red-hot domestic demand. At the same time, much of the US harvest has been tucked away in on-farm storage increasing commercial traders’ concern over sourcing supplies through next summer. We can also see this in futures spreads that strengthened with the Dec-March covering 15% calculated full commercial carry at October’s close while the Dec-July finished at 2.25 cents inverse. The end of October 2021 saw the Dec-March covering 30% cfcc while the Dec-July covered 17% cfcc meaning fundamentals are more bullish than a year ago.
SOYBEANS: The national average cash price for soybeans was calculated at $13.73 on October 31, 2022, a price that correlates to an end of month available stocks-to-use of 5.4%. The end of September showed $13.18 and 6.3% with last October coming in at $11.96 and 8.8%. Export demand increased as October progressed, with a total of 309 mb inspected over the course of the month. National average basis firmed by about 10.25 cents versus the January futures contract, setting the stage for what is expected to be continued strength during November and December. The commercial side remains bullish long-term as the January-July spread closed October covering 20% cfcc, even with what it was covering at the end of September. Last year at this time the spread covered a neutral 39% cfcc.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $9.39 on October 31, 2022, a price that correlates to an end of month available stocks-to-use of 25.0%. The end of September showed $9.50 and 24.8% with last October coming in at $7.67 and 31.3%. These numbers tell us the supply and demand situation loosened a bit during October, and since more supplies weren’t created the implication is demand continued to slow down. On the other hand, the 2022-2023 market remains more bullish than last year at this same time. Additionally, the Dec-March futures spread closed October at an inverse of 4.5 cents as compared to last month’s inverse of 6.25 cents and last October’s carry of 3.25 cents.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $9.3025 on October 31, 2022, a price that correlates to an end of month available stocks-to-use of 28.0%. The end of September showed $9.2975 and 27.8% with last October coming in at $10.1650 and 25%. The 2022 harvest was obviously larger than 2021 while demand remains consistent, leading to the lower year-to-year price and increase in end of October available stocks-to-use. We can also see this in futures spreads with the Minneapolis Dec-March closing October covering 26% cfcc while the same spread a year ago was at an inverse of 19.25 cents.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $8.24 on October 31, 2022, a price that correlates to an end of month available stocks-to-use of 27.4%. The end of September showed $8.61 and 26.0% with last October coming in at $7.27 and 31.8%. The SRW market is interesting as there continues to be ample supplies while demand slowed during October. We will now see what happens over the coming months given the latest developments in Ukraine. The Dec-March futures spread finished October covering 59% cfcc as compared to September’s close covering 38% cfcc and last October’s 67% cfcc.
[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.
