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 national average cash price (National Price Indexes). 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 Corn Index (NCI) was calculated at $4.24 on April 30, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 12.5%. The end of March showed $4.18 and 12.6% with April 2023 coming in at $6.21 and 9.3%. The key to corn at this time is the 2024 market continues to follow what was seen during 2014. A decade ago the NCI posted a high monthly close of $4.86 at the end of April before falling to a low monthly close of $2.84 at the end of September. In 2024, as/u remain burdensome, so much so that funds are not afraid of holding a large net-short futures position and national average basis continues to run neutral-to-weak despite a pace projected 34% increase in export demand.
SOYBEANS: The National Soybean Index (NSI) was calculated at $10.98 on April 30, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 11.6%. The end of March showed $11.34 and 10.5% with April 2023 coming in at $14.02 and 5.1%. The bottom line for soybean real fundamentals is that supplies are growing in relation to demand, month-to-month and year-to-year. Recall the long-term downside target on the NSI’s monthly close only chart is still near $10.25, a price that would roughly correlate to as/u of 14.3%.
SRW WHEAT: The National SRW Wheat Index (SWI) was calculated at $5.38 on April 30, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 41.8%. The end of March showed $5.06 and 44.0% with April 2023 coming in at $5.86 and 39.0%. While SRW wheat remains fundamentally bearish, the SWI is showing an uptrend on its long-term monthly chart. At the same time, futures spreads were covering more than 100% calculated full commercial carry, setting the stage for one of the more dramatic Rubber Band Dispositions we’ve seen in many years.
HRW WHEAT: The National HRW Wheat Index (HWI) was calculated at $5.81 on April 30, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 39.8%. The end of March showed $5.38 and 41.7% with April 2023 coming in at $7.55 and 31.7%. Similar to SRW, HRW fundamentals remain bearish, though not as bearish as seen at the end of previous months. Looking ahead, futures spreads continue to cover bearish levels of calculated full commercial carry.
HRS WHEAT: The National HRS Wheat Index (HSI) was calculated at $6.80 on April 30, 2024, a price that correlates to an end of month available stocks-to-use (as/u) of 38.0%. The end of March showed $6.24 and 40.7% with April 2023 coming in at $7.72 and 33.8%. As with winter markets, spring wheat fundamentals remain bearish, though some tightening of supply and demand has been seen the last couple months. In this case, national average basis is neutral-to-strong.
[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.
