The bottom-line fundamental 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%. 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 $6.78 on November 30, 2022, a price that correlates to an end of month available stocks-to-use of 8.5%. The end of October showed $6.97 and 8.3% with last November coming in at $5.56 and 10.2%. We saw the US corn supply and demand situation loosen a bit during November, likely due strengthening basis over the course of the month and a futures market that still looks to be going nowhere. Export demand remains an issue as the US was on pace to ship only 1.335 bb for the 2022-2023 marketing year as of Thursday, November 24. This was roughly 1.0 bb below last marketing year’s reported 2.353 bb. As for the argument export demand could see a seasonal increase in Q3 (an argument I’ve made), outstanding sales in late Q1 were only 495 mb. Some of the slowness in export demand could be due to a lack of US supplies, as stocks-to-use remain well below last year. A problem for the corn market on the horizon could be feed demand starting to slow as fewer head of cattle get placed each month. As for futures spreads, the March-May closed the month at an inverse of 1.75 cents while the May-July showed an inverse of 5.5 cents. The end of October showed these spreads at 1.0 cent inverse and 6.5 cents inverse respectively.
SOYBEANS: The national average cash price for soybeans was calculated at $14.49 on November 30, 2022, a price that correlates to an end of month available stocks-to-use of 4.4%. The end of October showed $13.73 and 5.4% with last November coming in at $11.81 and 9.0%. Appropriate background music for the attached table (slide 1) is the classic Sesame Street tune “One of These Things (Is Not Like the Others)” as US soybeans showed the only available stocks-to-use situation tightening during November. Much of this was due to continued strong export demand as the US was on pace to ship 1.95 bb late in the month as compared to late October’s 1.73 bb. Last marketing year the US reportedly shipped 2.1 bb of soybeans. Crush demand remains strong as well. As for futures spreads, the January-March closed November covering 19% calculated full commercial carry (cfcc) with the March-May at 23% cfcc and May-July 10% cfcc. The latter two spreads will be closely watched as the summer season has begun in South America. Last month saw these same three spread covering 26%, 24%, and 11% respectively.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $8.68 on November 30, 2022, a price that correlates to an end of month available stocks-to-use of 27.4%. The end of October showed $9.39 and 25% with last November coming in at $8.05 and 29.8%. The US HRW wheat situation continues to loosen despite the fact no more bushels are coming in. This indicates demand has slowed, with exports through the first half of the 2022-2023 marketing year at roughly 103 mb as compared to last year’s 136 mb for the same timeframe. Additionally, outstanding sales stood at only 31 mb as compared to last year’s 73 mb. Again, though, we have to keep in mind overall available stocks-to-use are tighter than a year ago. The March-May Kansas City futures spread closed November at an inverse of 6.75 cents as compared to last month’s settlement of a 3.0-cent inverse.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $9.05 on November 30, 2022, a price that correlates to an end of month available stocks-to-use of 28.8%. The end of October showed $9.30 and 28% with last November coming in at $9.82 and 26.2%. US HRS supply and demand looks similar to HRW in that demand continues to slow. We can see in the year-to-year numbers 2022 production was better than 2021, offset by continued solid domestic and export demand. Regarding the latter, late November showed total sales (exports and outstanding sales) of HRS at 152 mb as compared to last year’s 141 mb for the same time frame. The March-May futures spread closed November at an inverse of 4.0 cents versus the end of October 7.0-cent carry (29% cfcc) settlement.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $7.36 on November 30, 2022, a price that correlates to an end of month available stocks-to-use of 32.3%. The end of October showed $8.24 and 27,4% with last November coming in at $7.42 and 31.2%. This was the largest the US SRW month-end available stocks-to-use has been since 34.8% at the end of September 2021 when the cash index was calculated at $6.68. Those of us watching futures spreads won’t be horribly surprised as the Dec-March closed November at a carry of 24.0 cents and covering 87% cfcc as compared to the previous month’s settlement of 17.0 cents and 59%. The March-May has posted closes of 10.5 cents carry (57% cfcc) and 8.25 cents carry (43% cfcc) the last two 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.