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 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 $6.88 on January 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 8.3%. The end of December showed $6.90 and 8.3% with last January coming in at $6.16 and 9.4%. The market stabilized during January as first of the year cash sales were offset by continued strong demand. National average basis weakened from 11.9 cents over March near the end of December to 8.2 cents over March at the end of January. Despite this, the national average basis market remains bullish as it continues to run well above its previous 5-year highs. Longer-term fundamentals are also bullish given the March-May futures spread closed January at an inverse of 2.25 cents while the May-July settled at 12.25 cents inverse. The previous month saw closes of 0.5 cent inverse and 6.25-cent inverse respectively while the 2022 editions of these spreads closed last January at 1.5 cents inverse and 5.25 cents inverse. Bottom Line: Merchandisers continue to push the immediate cash market searching for tight supplies in relation to demand. Longer-term the commercial side of the market is more bullish than it was a year ago meaning there is a greater concern for finding supplies this spring and summer.
SOYBEANS: The national average cash price for corn was calculated at $15.06 on January 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 3.8%. The end of December showed $14.96 and 3.9% with last January coming in at $14.44 and 4.5%. National average basis weakened during January from a late December reading of 28.4 cents under March futures to 31.75 cents under March at Tuesday’s close. Much of this was due to merchandisers allowing the futures market to source supplies as March rallied as much as 24.5 cents for the month. We can see this in the cash price gaining 10 cents as well. The March-May futures spread finished January at an inverse of 7.75 cents while the May-July was at an 11.5-cent inverse. This was much stronger than the end of December close of 6.0 cents carry and 3.25 cents carry respectively. Last year the 2022 editions of these same spreads closed at 4.75 cents carry and 2.75 cents inverse. Bottom Line: the commercial side of the market is still incredibly bullish US soybeans. Export shipment pace through mid-January indicated total exports of 2.131 bb as compared to last year’s reported 2.101 bb. Additionally, crush demand is expected to increase as well. Long-term demand is the question, though at the end of January futures spreads indicate a more bullish view than a year ago despite the expectation of a record large crop in Brazil.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $8.49 on January 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 28.1%. The end of December showed $8.57 and 27.8% with last January coming in at $7.74 and 31.0%. The HRW as/u situation loosened a bit during January, likely a result of a slowdown in demand. Still, the old-crop March-May futures spread saw its inverse strengthen during January, closing the month at 7.0 cents inverse as compared to December’s settlement of 5.75 cents inverse. Additionally, the new-crop July-September spread finished January at 0.25 cent inverse versus December’s final 0.5 cent carry. A year ago the 2022 spreads closed January at 3.0 cents carry (March-May) and 3.75 cents carry (July-September). Bottom Line: Both old-crop and new-crop supply and demand scenarios are tighter than they were a year ago. The spotlight will shift to new-crop as we make our way through February and the 2023 crop nears breaking out of winter dormancy.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $7.20 on January 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 31.9%. The end of December showed $7.47 and 30.7% with last January coming in at $7.27 and 31.8%. The SRW as/u situation loosened during January, and while still tighter than a year ago is a long way from being considered ‘tight’. The 31.9% as/u was the largest since 34.8% at the end of September 2021, a development that has to be disappointing to market bullish anticipating increased demand for US wheat given the ongoing situation in Ukraine. The March-May futures spread closed January at a carry of 9.25 cents and covering 51% calculated full commercial carry (cfcc), firmly in neutral territory. Last month this same spread closed at a carry of 6.75 cents and covering 37% cfcc (with 33% or less considered bullish) meaning the commercial view of old-crop supply and demand grew less bullish. A year ago the March-May spread closed at a carry of 3.0 cents and covered a bullish 24% cfcc as Russian troops began to move toward the Ukraine border. Bottom Line: The commercial side of the market is neither bullish nor bearish old-crop SRW wheat, though the trend is to a less bullish view. The outlook for new-crop remains near the bullish side with the July-September spread covering 34% cfcc at the end of January.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $9.03 on January 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 28.8%. The end of December showed $9.14 and 28.5% with last January coming in at $8.88 and 29.4%. The first thing that continues to jump out at me with HRS wheat is monthly as/u are tighter than they were a year ago despite reports of a larger harvest. This tells us demand for the 2022 crop has stayed strong through the winter, and given the March-May futures spread closed January at an inverse of 6.75 cents while the May-July settled at an inverse of 5.0 cents the situation is expected to stay tight through the spring. Last January saw the 2022 editions of these spreads close at inverses of 2.75 cents and 5.75 cents respectively. While a bit smaller this year, the fact remains when talking about a storable commodity an inverse is always bullish, no matter how small. Bottom Line: The HRS market will stay out of the spotlight until the spring planting season, though commercial traders remain concerned over tight supplies in relation to demand
[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.