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 $6.21 on April 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 9.3%. The end of March showed $6.70 and 8.6% with last April coming in at $8.00 and 7.1%. A couple things stand out to me about corn supply and demand at the end of April: 1) Last year’s mark topped the market, with the cash index falling sharply since, and 2) the growth in this year’s as/u is coming from bushels being sold out of storage while demand continues to slow. The latest monthly cattle on feed showed 11.6 million head (as of April 1), as compared to 12.1 mh at the same time last year. As for exports, the latest weekly update showed the US on pace to ship 1.553 bb, down 34% from last year’s reported shipments of 2.353 bb. In general, the cash index continues to follow the path laid out during the 2010-2011 to 2013-2014 marketing years (slide 2) when cash posted a low monthly close of $3.37 at the end of July 2014. For the record, the index finished April 2013 at $6.76.
SOYBEANS: The national average cash price for soybeans was calculated at $14.02 on April 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 5.1%. The end of March showed $14.64 and 4.2% with last April coming in at $16.45 and 2.4%. The monthly cash index and as/u chart for soybeans is interesting from a technical point of view (yes, a technical look at fundamentals). The cash index (green line) completed a head and shoulder top pattern at the end of April as it came in below trendline support at $14.14 (slide 3). Given the May 2022 high monthly close of $16.51 relation to trendline at the time ($12.63), the technical downside target for a low month-end close is near $10.26 (bottom dashed red line). If realized this would be near the October 2020 price of $10.06 with an as/u of 14.8%. What has changed? Mostly demand, with the latest weekly export sales and shipments update showing the US with 2022-2023 total sales (total shipments plus unshipped sales) of 1.86 bb, down 12% from 2021-2022 total sales of 2.114 for the same week.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $7.55 on April 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 31.7%. The end of March showed $8.47 and 28.2% with last April coming in at $10.49 and 21.8%. Similar to soybeans, the US HRW wheat cash index topped with a May 2022 price of $11.16 with as/u generally growing since. The end of April 2023 saw the index post its lowest monthly close since $7.15 at the end of September 2021 with as/u of 33.4%. This situation could change as winter wheat harvest begins this coming summer given how much of the HRW crop has been damaged by drought.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $5.86 on April 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 39%. The end of March showed $6.46 and 35.6% with last April coming in at $9.98 and 21.4%. This was the lowest monthly close by the SRW wheat index since $5.60 at the end of November 2020 with an as/u o 40.6%. Additionally, the Chicago (SRW) July-September futures spread was covering 62% calculated full commercial carry (cfcc) at month end while the September-December covered 65% cfcc (slide 5). Recall 67% or more is considered bearish meaning the commercial side of the market is working toward a long-term bearish view of SRW fundamentals.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $7.72 on April 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 33.8%. The end of March showed $8.67 and 30.2% with last April coming in at $11.25 and 22.0%. Like the other markets, the US HRS wheat supply and demand situation loosened a great deal this past month and over the last year. Attention will quickly turn to new-crop with much of the US Northern Plains still looking at wet planting conditions.
[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.