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 $4.27 on January 31, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 12.4%. The end of December showed $4.42 and 12.2% with January 2023 coming in at $6.88 and 8.4%. Corn’s supply and demand situation was the most bearish since the end of November 2020 when the NCI was priced at $4.06 and correlated to an as/u of 12.8%. The bottom line is US corn supplies continue to gain on demand, leaving the NCI in a strong long-term downtrend. As of the end of January there was no sign this trend was set to change, but often that is when trends do just that.
SOYBEANS: The national average cash price for soybeans was calculated at $11.69 on January 31, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 9.6%. The end of December showed $12.42 and 7.8% with January 2023 coming in at $15.06 and 3.8%. What jumps out at me with soybean market fundamentals is the technical picture that continues to exist on the monthly close-only chart. After completing a head and shoulder top pattern this past April, the projection for a low monthly close by the National Soybean Index (NSI, national average cash price) was near $10.25. January saw the NSI take out its November 2021 low monthly close of $11.81, now sitting at its lowest level since $11.20 at the end of November 2020 (fitting enough – $11.20 for 11/20).
SRW WHEAT: The national average cash price for SRW wheat was calculated at $5.40 on January 31, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 41.6%. The end of December showed $5.63 and 40.4% with January 2023 coming in at $7.20 and 31.9%. National average basis remains weak, coming in on Friday, January 26 at 58.0 cents under March Chicago futures as compared to the previous 5-year low weekly close for that week of 39.25 cents under March.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $5.68 on January 31, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 40.1%. The end of December showed $5.85 and 39.4% with January 2023 coming in at $8.49 and 28.1%. Here we see bottom line HRW wheat fundamentals grew more bearish during January, fitting with the continued weakness of national average basis. The last weekly close of January saw the calculation come in at 54.5 cents under March Kansas City futures as compared to the previous 5-year low weekly close of 31.25 cents under March. This makes the March-May futures spread an outlier as it closed January at an inverse of 1.75 cents. The spread looks to be skewed by continued noncommercial short covering rather than commercial buying interest.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $6.68 on January 31, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 38.4%. Fundamentally, spring wheat continues to stabilize. This also fits with what we see with national average basis. The last weekly close of January showed a calculation of 24.25 cents under March Minneapolis futures as compared to the previous 5-year average weekly close of 23.0 cents under March.
[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.
