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 DTN National Corn Price Index (NCI, unweighted national average cash price) was calculated at $6.79 on September 30, 2022. This correlates to an end of month available stocks-to-use of 8.4%. The end of August showed $7.11 and 8.1% with last September coming in at $5.19 and 10.8%. What we saw in late September is normal, with harvest bringing new supplies into the system. Additionally, producers are selling some of those newly harvested bushels because futures spreads are giving no incentive to hold in commercial storage. Speaking of spreads: The December-March closed September at a carry of 6.5 cents and covering 19% calculated full commercial carry, with 33% or less considered bullish. The 2022-2023 Dec-July spread close at a carry of 0.75 cent and covering 1% cfcc. At the end of last September the Dec21-Mar22 spread closed at 7.75 cents carry and 29% cfcc with the Dec21-July22 at 12.25 cents carry and 20% cfcc. The bottom line is all the fundamentals reads at the end of September 2022 are more bullish than they were a year ago.
SOYBEANS: The DTN National Soybean Price Index (NSI, unweighted national average cash price) was calculated at $13.18 on September 30, 2022. This correlates to an end of month available stocks-to-use of 6.3%. The end of August showed $14.57 and 4.2% with last September coming in at $12.07 and 8.4%. Similar to corn, the end of September saw newly harvested bushels coming into the system increasing available supplies while low water levels on the Mississippi River slowed demand. The end result was a loosening of the near record tight supply and demand situation seen as late as May 2022 in soybeans. The end of September also showed the November-January futures spread close at a carry of 10.75 cents and covering a neutral-to-bullish 37% cfcc while the 2022-2023 Nov-July finished at a carry of 28.25 cents and 24% cfcc. Last September saw the Nov21-Jan22 spread close at 9.5 cents carry and 45% cfcc with the Nov21-July22 at 25.75 cents carry and 31% cfcc. Again, the bottom line is our soybean fundamental reads are more bullish than they were a year ago at this time.
HRW WHEAT: The DTN National HRW Wheat Price Index was calculated at $9.50 on September 30, 2022. This correlates to an end of month available stocks-to-use of 24.8%. The end of August showed $8.71 and 27.2% with last September coming in at $7.14 and 33.4%. The December-March Kansas City futures spread closed September at an inverse of 6.25 cents as compared to last year’s settlement of a 7.5-cent carry and covering 40% cfcc. The bottom line is HRW wheat remains one of the most fundamentally bullish markets in the commodity complex and is growing more bullish each month.
HRS WHEAT: The DTN National HRS Wheat Price Index was calculated at $9.30 on September 30, 2022. This correlates to an end of month available stocks-to-use of 27.8%. The end of August showed $8.74 and 29.8% with last September coming in at $9.01 and 28.8%. The December-March Minneapolis futures spread closed September at a carry of 3.0 cents and covering 9% cfcc as compared to last September’s settlement of a 12.5-cent inverse. This gives us a mixed bag fundamentally, in some cases more bullish than last year in others less, with the bottom line still being HRS wheat is fundamentally bullish.
SRW WHEAT: The DTN National SRW Wheat Price Index was calculated at $8.61 on September 30, 2022. This correlates to an end of month available stocks-to-use of 26.0%. The end of August showed $7.61 and 30.2% with last September coming in at $6.68 and 34.8%. The December-March Chicago futures spread closed September at a carry of 10.5 cents and covering 38% cfcc as compared to last year’s settlement of an 11.0-cent carry and covering 59% cfcc. The bottom line is SRW wheat fundamentals are neutral-to-bullish, but becoming increasingly bullish with each passing month.
[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.