I went a different route this month, discussing US soybean fundamentals with what looks to be a technical trend chart. What I want to focus on, though, is how the 2020-2021 marketing year path of the cmdty National Soybean Price Index (green line) relates to previous marketing years. I ran some correlation analysis against a wide range of years, with the tightest correlation of 97% against the 2007-2008 marketings year (red line). Not far behind, at a correlation of 92%, is the 2010-2011 marketing year (blue line). I will go into more detail in an upcoming Soybean Market Outlook for 2021, though here are some highlights:
- The Unknown Variable Solution (using the marketing year average price of the NSPI to solve for the unknown variables of total supply, total demand, and ending stocks) isn’t working that well for US soybeans at this time. That’s why I’m using a different method for tracking correlations and trends.
- Based on USDA’s flawed supply and demand numbers, the path of monthly domestic (US) ending stocks guesses is closely following what occurred during the 2010-2011 marketing year, for now (I will update following the next round of monthly reports).
- Recall the 2020-2021 NSPI is showing a 92% correlation with 2010-2011
- Based on equally questionable monthly WASDE data, global stocks-to-use (estimated ending stocks divided by total domestic demand, excluding exports), the December 2020-2021 estimate came in at 23.2%. The closest marketing year to that number is 2007-2008 at 23.1%.
- Recall the 2020-21 NSPI is showing a 97% correlation with its 2007-08 marketing year path.
- If monthly WASDE numbers continue to tighten, the next two possible marketing years to correlate to would be
- 2011-12 at 21.5%
- 2012-13 at 21.9%
As you know, I do not believe USDA’s numbers in any way, shape, or form. However, the cash market is showing strong correlation to these two marketing years, giving us something to track. As for futures spreads, the 2020-2021 Cost of Carry table is now completely in the red, meaning all spreads are showing strengthening inverses.