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.
You’ll notice the November 30, 2023 cash index numbers have an asterisk attached. There was a calculation issue with the indexes I track for monthly stocks-to-use, as well as national average basis, in late November that had not been adjusted by the end of the week. Therefore, I made my own adjustments to cash indexes based on trends, and will coordinate with the actual indexes at a later date. My adjustments give us a better idea of where national average cash prices were at the end of November, a critical part of the study of available stocks-to-use.
CORN: The national average cash price for corn was calculated at $4.38 on November 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 12.2%. The end of October showed $4.53 and 11.9% with last November coming in at $6.78 and 8.5%. The end of November’s numbers were the most bearish the US corn market supply and demand situation had been since November 2020’s $4.06 and 12.8%. At the same time, national average basis was calculated last Friday at 44.75 cents under March futures as compared to the previous 5-year low weekly close for last week of 39.25 cents under March. With demand growing more bullish, total export sales are running 33% ahead of last year at the same time while November 1 cattle on feed were 2% larger than a year ago, the continuing weakening of our reads on real fundamentals tells us there are more available supplies.
SOYBEANS: The national average cash price for soybeans was calculated at $12.84 on November 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 7.0%. The end of October showed $12.38 and 7.9% with last November coming in at $14.49 and 4.4%. Some of the tightening we are seeing in US available stocks-to-use is seasonal, as this is the 6-month timeframe when the US exports the largest percentage of its yearly total. However, the latest weekly export sales and shipments update showed US shipments were on pace to come up 17% short of last year’s total shipments while total sales were running 16% behind last year’s pace. On the other hand, crush through the end of October was only 3.5% ahead of last year’s reported total. As with corn, this tells us post-harvest supplies are tighter than what is being talked about, but still not nearly as tight as a year ago.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $5.15 on November 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 43.3%. The end of October showed $4.93 and 44.9% with last November coming in at $7.36 and 31.3%. For now I remain skeptical about the tightening US SRW wheat supply and demand situation. Funds had increased their net-short futures position to 97,200 contracts as of Tuesday, November 28, leaving the door open to a rally in nearby futures due to short-covering. Still, while basis remains weak it has continued to firm, making the picture a bit cloudier at the end of the month. The latest sales and shipments update showed all US wheat total sales still running 6% behind last year’s less than impressive pace. Recall reported shipments of all US wheat for 2022-2023 were 653 mb.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $5.82 on November 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 39.5%. The end of October showed $5.65 and 40.3% with last November coming in at $8.68 and 27.4%. Given Kansas City wheat futures spreads (Dec-March and March-May) covered a bullish level of calculated full commercial carry as December moved into delivery on November 30, it is not surprising available stocks–to-use tightened last month. On the other hand, national average basis remains weak as cash indexes rolled from the December futures contract to March.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $6.87 on November 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 37.8%. The end of October showed $6.65 and 38.6% with last November coming in at $9.05 and 28.8%. The end of November numbers put the 2023-2024 HRS wheat market near mid-range of year-end available stocks to use dating back to 2005.
[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.
