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 $6.36 on February 28, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 9.1%. The end of January showed $6.88 and 8.4% with last February coming in at $6.77 and 8.6%. The corn market is showing the result of increased cash sales as the market collapses at a time when demand is steady at best. Feed demand remains solid, though the number of cattle on feed likely decreased during February. Ethanol production was stable through mid-February while the pace of exports actually slowed. As we can see on this corn chart, the monthly close for the cash index took out previous low monthly closes near $6.79. From a technical point of view, this projects a low monthly close for the cash market near $5.80. The same index bottomed out near $3.37 during July 2014. Bottom Line: Basis continues to run stronger than the previous 5-years and futures spreads were bullish as February came to a close. The May-July finished the month at an inverse of 8.0 cents as compared to the end of January 12.25 cents inverse.
SOYBEANS: The national average cash price for corn was calculated at $14.46 on February 28, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 4.4%. The end of January showed $15.06 and 3.8% with last February coming in at $15.87 and 3.0%. The soybean market looks to be in a seasonal situation where export demand for US soybeans is slowing while shipments out of Brazil increase. The next item on the seasonal list is a dockworkers strike in Brazil. We also have to keep an eye on possible imports into the US given how tight as/u had been running. For now the fundamental situation remains bullish, just not as bullish as it has been with the end of February as/u the largest since 4.5% at the end of January 2022. Bottom Line: The commercial side of the market remains bullish US soybeans, as indicated by the strength of national average basis in relation to its previous 5-year high weekly closes and futures spreads. In regard to the latter, the May-July closed February at an inverse of 9.5 cents as compared to the end of January 11.5-cent inverse. From a technical point of view, a look at the monthly close only chart shows a case could be made for a head and shoulders top by the cash index.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $7.83 on February 28, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 30.6%. The end of January showed $8.49 and 28.1% with last February coming in at $9.36 and 25.0%. The HRW wheat supply and demand situation continues to loosen, most likely due a continued slowdown in demand. The end of February as/u was the largest since January 2022 when the cash index finished at $7.74 and as/u were calculated at 31.0. Bottom Line: Both old-crop and new-crop futures spreads continue to show bullish fundamentals, though demand seemed to slow during February. As we make our way into the spring season, attention will turn to new-crop and weather.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $6.58 on February 28, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 35.0%. The end of January showed $7.20 and 31.9% with last February coming in at $8.93 and 25.0%. Demand remains virtually non-existent for US SRW wheat, reflected in the end of February as/u adding 10 percentage points to last year’s calculation. That’s impressive, but not in a bullish way. At the same time we saw the March-May futures spread move to a carry of 14.0 cents and covering 80% calculated full commercial carry as compared to the 2022 edition’s February close of a 6.0-cent carry and covering 44% cfcc. Bottom Line: The commercial side spent most of February getting more bearish the market, with that sentiment accelerating into the monthly close. This was the largest end of month as/u since August 2021, also at 35.0.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $8.36 on February 28, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 31.3%. The end of January showed $9.03 and 28.8% with last February coming in at $8.93 and 26.7%. As discussed in both winter wheat markets, commercial traders seemed to throw in the towel on spring wheat during February. The end of month as/u calculation was the lowest since 31.3% as June 2021 came to a close. However, futures spreads remain bullish with the old-crop May-July closing February at an inverse of 4.25 cents. Bottom Line: The HRS market will stay out of the spotlight until the spring planting season, with that situation drawing closer now that meteorological spring has officially begun.
[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.