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 $5.44 on July 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 10.4%. The end of June showed $5.44 and 10.6% with last July coming in at $7.00 and 8.3%. The cash index has posted a volatile couple months, with a light round of commercial buying seen toward the end of July tied to late season demand. Looking long-term, the key is the cash index has held the low monthly close from September 2021 at $5.19 (10.8% as/u). Additionally, this cash index posted a bullish spike reversal on its monthly price chart, indicating that both fundamentally and technically cash corn may have made a long-term bullish turn.
SOYBEANS: The national average cash price for soybeans was calculated at $13.52 on July 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 5.8%. The end of June showed $14.44 and 4.5% with last July coming in at $15.38 and 3.5%. From a technical point of view, I still see a head and shoulders top formation playing out on the soybean cash index monthly close-only chart. If so, the measured downside target remains $10.26 (bottom dashed red line). What would cause the cash index to collapse this far? A continued slowdown in demand combined with increased 2023 production potential. Initial support could be at the May close of $12.74 (7.2% as/u).
HRW WHEAT: The national average cash price for HRW wheat was calculated at $7.52 on July 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 31.8%. The end of June showed $7.53 and 31.8% with last July coming in at $8.25 and 29.0%. It’s interesting to note there has been little month end-to-month end change in the HRW wheat cash index April, meaning as/u haven’t changed much from before harvest to deep into 2023 harvest. At the same time, wearing national average basis has generally erased the rally in nearby futures contracts, and the September-December futures spread covered a neutral 55% calculated full commercial carry at the close of July. It looks to be a stalemate in HRW wheat.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $6.01 on July 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 38.0%. The end of June showed $5.97 and 38.4% with last July coming in at $7.49 and 30.7%. The cash index could be viewed as the lone bright spot in SRW wheat’s fundamental picture. Note I didn’t say bullish. National average basis continues to run weaker than the previous 4 years while the September-December futures spread covered 94% cfcc as July came to an end. If this continues, the CME’s Variable Storage Rate program will be in effect by the end of the month.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $7.96 on July 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 32.8%. The end of June showed $7.75 and 33.8% with last July coming in at $8.55 and 30.6%. It will be interesting to see what happens with the HRS wheat cash index as the 2023 harvest draws near. This year’s crop is expected to be better than previous years due in large part to improved moisture across the US Northern Plains.
[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.
