The bottom-line fundamental number is stocks-to-use. 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%. 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 available stocks-to-use (as/u) situation at month-end, 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 $6.28 on May 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 9.2%. The end of April showed $6.21 and 9.3% with last May coming in at $7.51 and 7.6%. The end of May provided us a number of possible outcomes for the corn market in general: First, both this cash index and the Barchart National Corn Price Index completed bullish spike reversals on their respective monthly charts, indicating the long-term trends of the intrinsic value of corn has turned up (see Monthly Analysis). This was a year after both indexes completed bearish reversal pattern turning the long-term trend down. On the other hand, there is still the possibility the Q4 and 2023-2024 cash market could continue to follow the path laid out during the 2010 to 2014 timeframe, meaning the cash market would bottom next summer. Fundamentally, both national average basis and futures spreads remain bullish and likely to provide support to the cash indexes.
SOYBEANS: The national average cash price for soybeans was calculated at $12.74 on May 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 7.2%. The end of April showed $14.02 and 5.1% with last May coming in at $16.51 and 2.4%. The monthly cash index and as/u chart for soybeans (slide 3) remains interesting from a technical point of view (yes, a technical look at fundamentals). The cash index (green line) completed a head and shoulder top pattern at the end of April as it came in below trendline support at $14.14. Given the May 2022 high monthly close of $16.51 relation to trendline at the time ($12.63), the technical downside target for a low month-end close is near $10.26 (bottom dashed red line). If realized this would be near the October 2020 price of $10.06 with an as/u of 14.8%. What has changed? Mostly demand, with the latest weekly export sales and shipments update showing the US with 2022-2023 total sales (total shipments plus unshipped sales) of 1.868 bb, down 14% from 2021-2022 total sales of 2.184 for the same week.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $7.57 oon May 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 31.7%. The end of April showed $7.55 and 31.7% with last May coming in at $11.16 and 20.0%. The HRW wheat market remains interesting given Kansas City futures spreads have been and continue to be inverted as far out as care to look, telling us the real supply and demand situation is bullish long-term. However, we have seen what is called the Wheat Reality play out, a factor that tells us one bushel of wheat left over is too many. As we close the book on the 2022-2023 marketing year (and you know my thoughts on the concept of a marketing year) we see 2022-2023 slid down its scale but was still holding above midrange (slide 4).
SRW WHEAT: The national average cash price for SRW wheat was calculated at $5.52 on May 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 41.0%. The end of April showed $5.86 and 39.0% with last May coming in at $10.o8 and 20.9%. The key difference between SRW and HRW is real fundamentals, with Chicago (SRW) futures spreads in bearish territory as 2022-2023 came to an end. In fact, the July-September is flirting with covering 80% calculated full commercial carry, a level that could trigger the CME’s Variable Storage Rate later in the month. As for ending available stocks-to-use, we see the 2022-2023 SRW mark falling into the bottom half of the range dating back to at least 2004-2005 as May came to an end (slide 5).
HRS WHEAT: The national average cash price for HRS wheat was calculated at $7.48 on May 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 35.0%. The end of April showed $7.72 and 33.8% with last May coming in at $12.02 and 20,0%. Again we see the Wheat Reality come into play with old-crop spring wheat. However, new-crop Minneapolis (HRS) futures spreads were still bullish at the end of the month meaning attention could soon turn to tightening new-crop supplies.
[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.