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 $6.90 on December 31, 2022, a price that correlates to an end of month available stocks-to-use of 8.3%. The end of November showed $6.78 and 8.5% with last December coming in at $5.86 and 9.8%. Demand for tight US corn available stocks increased during December. Reportedly, there were 11.7 million head of cattle on feed as of December 1, nearly unchanged from the previous month. Meanwhile, the pace of US export inspections picked up with the last week of November showing a projected total of 1.335 bb and the latest weekly update (for the week ending Thursday, December 22) showing a projected total of 1.583 bb. US ethanol production also increased slightly with the EIA showing a 4-week average (for the week of December 23) 1.032 million barrels per day as compared to November’s 1.03 mbpd and the previous December’s 1.072 mbpd. The bottom line is 2022-2023 available stocks-to-use remain tighter than a year ago. It’s also interesting to take a look at corn’s monthly chart (slide 2) from a technical point of view. Note the cash price (green line) looks to have completed a 3-wave downtrend and is now moving sideways between monthly closes near $6.80 and $6.90. All this sets the stage for a potential bullish breakout meaning available stocks-to-use should continue to decline.
SOYBEANS: The national average cash price for soybeans was calculated at $14.96 on December 31, 2022, a price that correlates to an end of month available stocks-to-use of 3.9%. The end of November showed $14.49 and 4.4% with last December coming in at $12.93 and 6.6%. The monthly available stocks-to-use chart for US soybeans (slide 3) is interesting in that it shows a consistent decrease with the 3.9% the lowest December figure I have on record. The closest would be December 2012 when the cash index at $13.91 correlated to 5.1%. By June 2013 the cash index had climbed to near $15.24 correlating to available stocks-to-use of 3.6%. Demand remains strong for US soybeans with the latest weekly export shipments update (for the week ending Thursday, December 22) showing a pace projection for total exports of 2.044 bb, 3% below last years reported marketing year shipments of 2.101 bb. As of the same week, US total sales were running 4% above the previous marketing year. Meanwhile, US soybean crush continues to run on par with the previous marketing year with the next monthly update scheduled for release on Tuesday, January 3.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $7.47 on December 31, 2022, a price that correlates to an end of month available stocks-to-use of 30.7%. The end of November showed $7.35 and 31.3% with last November coming in at $7.41 and 31.3%. I wanted to highlight the SRW market this month for a couple reasons: First, the cash market went against the Krampus Countdown (Don’t be long wheat in December) as the national index increased by 12 cents (slide 4). Second, the slightly tighter available stocks-to-use situation was indicated to us by the March-May Chicago futures spread losing some of its carry during December. The end of November saw this spread close at a carry of 10.5 cents and covering 57% calculated full commercial carry (cfcc) before the same spread settled December at 6.75 cents carry and covered 37% cfcc (slide 5). Similar to the corn, the monthly chart for the cash index looks to have completed a 3-wave downtrend and now could trend up. This implies US SRW available stocks-to-use should continue to tighten.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $8.57 on December 31, 2022, a price that correlates to an end of month available stocks-to-use of 29.5%. The end of November showed $8.68 and 27.4% with last December coming in at $7.97 and 30.0%. The bottom line is US HRW supply and demand continues to run tighter than it was a year ago, a fact also visible to us with futures spreads. The 2023 March-May spread closed December at an inverse of 5.75 cents while the 2022 edition closed last December at a carry of 0.5 cent and covering 4% cfcc US exports of HRW continue to run well behind last marketing year with the latest weekly update (for the week ending Thursday, December 22) showing total sales (total shipments plus unshipped sales) of 152 mb as compared to the previous year fore the same week of 230 mb. Part of this is due to the generally low US supplies.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $9.14 on December 31, 2022, a price that correlates to an end of month available stocks-to-use of 28.5%. The end of October showed $9.05 and 28.8% with last November coming in at $9.62 and 27.0%. US HRS supply and demand tighten up a bit during December, with some of the activity coming on the export side. The latest weekly updated showed total 2022-2023 sales of 166 mb as compared to the previous marketing year’s 156 mb for the same week. The 2023 March-May futures spread closed December at an inverse of 13.25 cents as compared to the previous December’s settlement at an inverse of 5.75 cents. The US HRS supply and demand situation remains tight.
[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.
