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 $4.42 on December 29, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 12.2%. The end of November showed $4.43 and 12.2% with last December coming in at $6.90 and 8.3%. Corn’s supply and demand situation continues to run at its most bearish level since November 2020. Additionally, the National Corn Index at the end of December 2023 continues to follow the path laid out during the 2010 to 2014 time frame, based on monthly closes only. A decade ago the NCI posted an initial low close at the end of December ($4.02) before rallying to high monthly close at the end of April ($4.86), then falling to a new low monthly close at the end of July 2014 ($3.37). The 2020-2024 time frame is showing a 74% correlation to 2010-2014.
SOYBEANS: The national average cash price for soybeans was calculated at $12.42 on December 29, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 7.8%. The end of November showed $12.84 and 7.0% with last December coming in at $14.96 and 3.9%. 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. The key price is the September 2023 low close of $12.09. If the NSI takes out its September low, opening the door to a continued slide, it would be because the Brazilian crop made it through another drought and the world’s largest buyer continues to only buy its secondary supplies from the US.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $5.63 on December 29, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 40.4%. The end of November showed $5.20 and 43.3% with last December coming in at $7.48 and 30.7%. As I’ve talked about a number of different times in a number of different places, I’m not convinced SRW wheat fundamentals have tightened as much as the National Index has indicated. The market has been skewed by continued noncommercial long liquidation, with funds moving from a net-short futures position of 97,200 contracts (week of November 28) to a net-short of 31,400 contracts (week of December 26). National average basis remains weak, coming in on Friday, December 29 at 65.25 cents under March Chicago futures as compared to the previous 5-year low weekly close for that week of 44.5 cents under March.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $5.85 on December 29, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 39.4%. The end of November showed $5.82 and 39.5% with last December coming in at $8.57 and 27.8%. As December 2023 came to a close, the Kansas City March-May futures spread finished at a carry of 2.0 cents and covered only 11.0% calculated full commercial carry. While HRW has also seen some fund short covering, futures spreads have been bullish for a number of months. Still, like SRW wheat, national average basis remained weak, calculated on Friday, December 29 at 57.5 cents under March Kansas City futures. The previous 5-year low weekly close for that week was 33.25 cents under March.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $6.94 on December 29, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 37.4%. The end of November showed $6.90 and 37.8% with last December coming in at $9.14 and 28.5%. The end of December numbers kept 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.
