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 $4.82 on August 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 11.4%. The end of July showed $5.44 and 10.4% with last August coming in at $7.11 and 8.1%. Though I’m not a strong believer in marketing years these day, if we view August as the close of the 2022-2023 version the final monthly cash index calculation tells us what the final available stocks-to-use situation was. The cash index dropped to $4.8150, from the end of July’s $5.4450, putting available stocks-to-use at 11.4%. This had 2022-2023 near the midpoint of the sliding range from the low of $2.05/17.5% from 2005-2006 and high of $7.89/7.2% from 2011-2012. It’s also worth noting this slide down the scale fits with what we saw a decade ago before the 2013-2014 marketing year finished at $3.44/14.1%.
SOYBEANS: The national average cash price for soybeans was calculated at $13.46 on August 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 5.9%. The end of July showed $13.52 and 5.8% with last August coming in at $14.57 and 4.3%.The final monthly calculation for the soybean cash index still had the market in the upper end of the range from the low of $7.48/30.4% (2017-2018) to $17.32/2.0% (2011-2012). While basis has weakened sharply due to a lack of demand the last quarter of 2022-2023, futures continue to show a high price because of concern over a smaller 2023 US crop. As I mentioned in the Column for September, the cash index is still on trending toward a possible low near $10.25. If this happens it would be because demand did not materialize as expected during 2023-2024.
SRW WHEAT: The national average cash price for SRW wheat was calculated at $5.07 on August 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 44.0%. The end of July showed $6.01 and 38.0% with last August coming in at $7.61 and 30.2%. Like all the other fundamental aspects of the SRW wheat market, the cash index collapsed during August, finishing at its lowest monthly close since June 2020. Given futures spreads continue to cover more than 100% calculated full commercial carry, at least until the CME’s new maximum storage rate of about 8 cents/bushel/month kicks in on September 19, US SRW wheat available stocks-to-use should continue to slide down the scale. The end of 2023-2024 Q1 saw the market quickly dropping into the lower end of its range with the low at $3.11/59.0% from 2004-2005.
HRW WHEAT: The national average cash price for HRW wheat was calculated at $6.52 on August 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 36.0%. The end of July showed $7.52 and 31.8% with last August coming in at $8.71 and 27.2%. Despite Kansas City futures spreads still showing a bullish supply and demand situation, available stocks-to-use slid to near midrange between the low of $3.18/55.3% (2004-2005) and the high of $11.16/20% (2021-2022). Given the high end was established just over a year ago, it’s a reminder of just how quickly the situation can change in wheat following a better crop.
HRS WHEAT: The national average cash price for HRS wheat was calculated at $6.80 on August 31, 2023, a price that correlates to an end of month available stocks-to-use (as/u) of 38.0%. The end of July showed $7.96 and 32.8% with last August coming in at $8.74 and 29.8%. We can again see the difference a better crop makes, with 2023 production improving from the past few years. While most futures spreads were neutral, we need to keep in mind the September futures contract moved into delivery with the September-December spread covering 90% calculated full commercial carry. If a Down Escalator Simulator develops, we would expected deferred futures spreads to follow the same path.
[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.