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 $6.70 on March 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 8.6%. The end of February showed $6.36 and 9.1% with last March coming in at $7.20 and 8.0%. Fundamentally, the corn market tightened during March, most likely a result of an increase in export demand to go along with continued feed and ethanol usage. According to the latest weekly export sales and shipments update, for the week ending Thursday, March 23, the US had shipped 166 mb as compared to 95 mb for the four weeks of February. Historically the second half of the marketing year is when US exports pick up the pace, with an average of 61% of shipments occurring after February. This will make the battle for tight US supplies that much more interesting, possibly, unless the US sees a sharp drop in feed and/or ethanol demand. The balance of Q3 (April and May) could be key to US cash market and as/u readings.
SOYBEANS: The national average cash price for corn was calculated at $14.64 on March 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 4.2%. The end of February showed $14.46 and 4.4% with last March coming in at $15.55 and 3.2%. Fundamentally there is a lot going on with US soybeans at the end of March. While short-term supply and demand was tightening, national average basis was weakening. Additionally, as discussed in my Column for April, the commercial outlook for new-crop loosened as well. While there isn’t much wiggle room for the 2023 crop, the US could see more acres than expected given the wheat situation across the US Plains. From a technical point of view, a look at the monthly close only chart (slide 3) shows a case could be made for a head and shoulders top by the cash index. If completed this would imply larger as/u down the road.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $8.47 on March 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 28.2%. The end of February showed $7.83 and 30.6% with last March coming in at $9.71 and 24.1%. The US HRW wheat supply and demand situation tightned a bit during March, but still can not be considered tight. This could change, though, as we make our way through Q4 of the 2022-2023 marketing year (April and May) and start looking ahead toward 2023-2024 and what is expected to be a small crop. While supplies are expected to decrease substantially, the question will be demand. This year, so far, has seen both domestic and export demand for US HRW decrease, with more of the same likes next year. That having been said, the monthly close-only chart for the HRW wheat national price index has moved into an uptrend (slide 4) indicating as/u should continue to tighten.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $6.46 on March 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 35.6%. The end of February showed $6.58 and 35% with last March coming in at $9.36 and 23.5%. US SRW wheat was the only one of the five major markets that saw its supply and demand situation loosen during March, continuing the trend we’ve seen generally throughout the 2022-2023 marketing year. With two months remaining in the marketing year, the SRW wheat national cash index is on tract to correlate with the highest as/u since 44% at the end of the 2019-2020 marketing year. As for new-crop, the July-September futures spread closed March covering 65% calculated full commercial carry, with 67% considered bearish.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $8.67 on March 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 30.2%. The end of February showed $8.36 and 31.3% with last March coming in at $10.38 and 24.5%. While the US HRS wheat supply and demand situation tightened during March, it is nowhere near being record tight. That was set at the end of last May when the HRS national wheat price index was calculated at $12.02 and correlated to as/u of 20%. Given the wintery situation across the US Northern Plains, we’ll see how this changes over the coning months.
[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.
