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 $4.49 on September 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 12.0%. The end of August showed $4.82 and 11.4% with last September coming in at $6.79 and 8.5%. As I talked about in my latest Column, “Corn Economics 101”, what so many analysts/commentators didn’t understand following the release of USDA’s September 1 Grain Stocks report was the role demand plays. That’s why we continue to see the as/u number increase, not just in corn but for all the grain markets. As for corn, the end of September calculation was the largest since 12.8% at the end of November 2020. With harvest going full speed in early October, it would not be surprising to see as/u continue to increase as the month progresses.
SOYBEANS: The national average cash price for soybeans was calculated at $12.09 on September 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 8.5%. The end of August showed $13.46 and 5.9% with last September coming in at $13.18 and 6.3%. There were a number of fundamental factors weighing on the US soybean market at the end of September including a rapidly expanding harvest, river track slowed by low water levels, newly harvested beans backing up and terminals, with seasonal producer selling adding to the pressure on local, regional, and national average basis. My latest calculation for national basis came in at 65.75 cents under November futures as compared to the previous week’s 57.25 cents under and the previous 5-year average weekly close for last week of 55.0 cents under November. The long-term price target for the cash index, based on technical analysis, is a low monthly close near $10.25.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $4.61 on September 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 47.0%. The end of August showed $5.07 and 44.0% with last September coming in at $8.61 and 26.0%. Fundamentally SRW wheat is a train wreck. As September came to a close the December-March futures spread showed a carry of 33.0 cents and covered 96% calculated full commercial carry (cfcc), with 67% or more considered bearish. This after the CME’s Variable Storage Rate (VSR) policy went into effect on September 19, raising the maximum commercial storage rate from roughly 5 cents per bushel per month to about 8 cents per bushel per month. The bottom line is the US has too much SRW wheat on hand and not enough demand. Not by a long shot.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $5.95 on September 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 38.8%. The end of August showed $6.52 and 36.0% with last September coming in at $9.50 and 24.8%. While the short-term December-March Kansas City (HRW) futures spread continues to sit in bullish territory below 33% cfcc, spillover weight from the incredibly bearish SRW market continues to pull HRW lower as well. As with SRW, demand remains an issue following a better 2023 US crop.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $6.41 on September 30, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 39.8%. The end of August showed $6.80 and 38.0% with last September coming in at $9.30 and 27.8%. We can again see the difference a better crop makes, with 2023 production improving from the past few years. Late September saw the December-March Minneapolis (HRS) move into bearish territory, covering 73% cfcc at the monthly close.
[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.
