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.
Keep in mind the end of February was also the end of the quarter for the Grain and Oilseed sector, meaning USDA’s nest Quarterly Stocks report will be stocks on hand as of today, March 1, 2024. This report is set for release on Thursday, March 28.
CORN: The national average cash price for corn was calculated at roughly $4.00 (actually $3.9975, for those tracking corn’s Round Number Reliance) on February 29, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 12.9%. The end of January showed $4.27 and 12.4% with February 2023 coming in at $6.36 and 9.1%. Corn’s supply and demand situation was the most bearish since the end of October 2020 when the NCI was priced at $3.78 and correlated to an as/u of 13.4%. Seasonally, the 2020 to 2024 NCI continues to track the path from 2010 to 2014, with a correlation of 77%, with the index posting a low monthly close of $2.84 at the end of September 2014.
SOYBEANS: The national average cash price for soybeans was calculated at $10.80 on February 29, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 12.2%. The end of January showed $11.69 and 9.6% with February 2023 coming in at $14.46 and 4.4%. 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 February monthly settlement of $10.80 was within fractions of the monthly low, putting the NSI within 55 cents of its downside monthly close-only target. Theoretically, when the NSI hits $10.25, as/u would be approximately 14.2%.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $5.26 on February 29, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 42.6%. The end of January showed $5.4o and 41.6% with February 2023 coming in at $6.58 and 35.0%. Despite the inverted old-crop March-May futures spread, I still view SRW fundamentals as bearish. Basis continues to run weaker than its previous 5-year weekly closes and the trend of the SRWI remains down, long-term.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $5.41 on February 29, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 41.5%. The end of January showed $5.68 and 40.1% with February 2023 coming in at $7.83 and 30.6%. As with SRW, our best read on HRW real fundamentals continues to grow more bearish. The end of February saw the HRWI post its lowest monthly close since November 2020 ($5.20) and its highest as/u since that same month (42.7%).
HRS WHEAT: The national average cash price for HRS wheat was calculated at $6.42 on February 29, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 39.8%. The end of January showed $6.68 and 38.4% with February 2023 coming in at $8.36 and 31.3%. Our best fundamental read on the HRS market is not as bearish as what we see in the two winter markets, with the HRSI at its lowest since only September 2023 ($6.41) and as/u the largest since that same month (39.8%).
[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.
