- The vast majority of the industry can tell you exactly when the next round of USDA Supply and Demand make believe numbers are set for release.
- Yet, most don't have a clue about what the markets are saying regarding real supply and demand.
- As February came to an end, the US was faced with growing supplies of grain in relation to demand.
Let me make something clear in the beginning: This is not a preview of USDA’s monthly Supply and Demand reports set for release at noon (ET) Friday, March 8. If we stop and think about it for a moment, those things are – well – stupid. They usually come in two forms: 1) They are making guesses about USDA’s guesses, meaning they are doing nothing more than playing the monthly game of Pin-the-Tail-On-the-Donkey (Jackass?), or 2) They are reporting on those who are making guesses about USDA’s guesses. Take a step back from the edge and consider what that says about the reporting/commentary/analysis industry in general.
Okay, now that my usual rant is out of the way, what do we already know about supply and demand for corn, soybeans, and wheat? For those that believe in the concept of “marketing years”[i], the end of February is an important marker. It is the 3/4-pole for wheat and the end of the second-quarter for corn and soybeans (even though spring wheat actually fits closer, timewise, with the other crops harvested in the fall). What were the various aspects of the markets telling us at the end of February?
National Cash Indexes
National cash indexes, the national average cash price of the markets, are THE most useful tool we have to understand real supply and demand. Any time of any day of any month of any year I can look at the cash index, the intrinsic value of the market, and calculate what available stocks-to-use (as/u) is. It’s Economics 101, with the market price at the intersection of supply and demand. What makes this more fun is we don’t actually know what the supply and demand numbers are[ii], but yet we know how they relate by studying cash price. At the end of February:
- The National Corn Index (ICY00) was $4.00, correlating to an as/u of 12.9%. The previous month was $4.27 and 12.4%, the previous February $6.36 and 9.1%.
- The National Soybean Index (ISY00) was $10.80 and 12.2% ($11.69 and 9.6%, $14.46 and 4.4%)
- The National SRW Wheat Index (IWY00) was $5.26 and 42.6% ($5.40 and 41.6%, $6.58 and 35.0%)
- The National HRW Wheat Index (IHY00) was $5.41 and 41.5% ($5.68 and 40.1%, $7.83 and 30.6%)
- The National HRS Wheat Index (IPY00) was $6.42 and 39.8% ($6.68 and 38.4%, $8.36 and 31.3%)
The consistent theme was as/u stocks of US grains grew during February. That’s it. We don’t know by how many bushels (cue all the hubbub over quarterly stocks as of March 1 later this month) but we do know available supplies outdistanced demand.
Demand
Speaking of which, the latest weekly export sales and shipments update showed us some interesting numbers. The latest round was for business through February 29, 2024, again the end of Q3 for US wheat and Q2 for corn and soybeans. What did we see?
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Total sales (total shipments plus unshipped sales) of all US wheat were reported at 678 mb, up 6% from the same week the previous marketing year.
- At a time when an average of 73% of what turns out to be total shipments have been moved, the US had shipped 470 mb, projecting total export demand of 644 mb, down 1% from the previous marketing year’s report 653 mb.
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Total sales of corn were 1.545 bb, up 28% from the same week last year.
- With an average of 43% of total shipments, the reported 841 mb projected export demand of 1.956 bb, up 26% from last year’s reported 1.554 bb.
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Total sales of soybeans were 1.449 bb, down 19% from the same week last year.
- With an average of 74% of total shipments, the reported 1.246 bb projected export demand of 1.684 bb, down 20% from last year’s reported 1.918 bb.
Again, there isn’t anything shocking in these demand numbers. While some want to point to the strength of corn’s export demand, we need to keep some things in mind:
- First, the US didn’t ship much corn last year because it didn’t have much corn to ship.
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Second, exports are the smallest of the three legs of demand for US corn, running on average at about 40% of feed and ethanol individually.
- Since September 1, the number of US cattle on feed has run roughly 1% above the previous year. Theoretically then, the argument could be made feed demand is up that same 1%, unless some of the feed ration has been moved to wheat.
- Ethanol demand is mandated demand meaning it is relatively constant from one year to the next.
2024 Acres
I know the bulk of the industry can’t function without the guidance provided by USDA, but the reality is we already know how 2024 planted area should shake out.
- All wheat acres simply don’t change much over time. Yes, official numbers ebb and flow but in the end the total averages close to 47 million acres.
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Soybeans bought planted area away from corn during the 6-month tracking window from September 1 through February 29.
- The Nov24 soybean/Dec24 corn futures spread showed an average weekly close of 2.49
- As compared to the previous 10-year average weekly close of 2.4
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With the closest previous year 2014 at an average of 2.46
- Back in 2014, US producers planted 8.5% more soybean acres and 5% less corn acres than the previous year
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The US government insurance spring base prices came in at $13.76 for soybeans and $4.66 for corn
- The spread finishing at 2.49 versus the 10-year average of 2.43
- And the previous year closest to 2024 being 2014 at 2.46
Given all this, here’s what we know without relying on USDA’s misinformation and those who tell you how important it is:
- The US was dealing with larger supplies in relation to demand as another quarter came to an end.
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Export demand for US wheat is ‘meh’ at best
- While strong for corn
- And weak for soybeans
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Despite all this, and unless weather changes things
- The US will still plant plenty of wheat acres
- More soybean acres (theoretically meaning more supplies) and
- Fewer corn acres
This allows us to plan according. Unless, again, you can’t make a move without USDA’s say-so.
[i] I call this the Marketing Year Misdirection. Take a moment to consider how screwed up the concept is for crops not grown in North America. What about South American corn and soybeans? Australian wheat? At its core the idea of a “marketing year” makes no sense when talking about global markets.
[ii] Regardless of what those spouting endless USDA make believe numbers tell you. I call these folks Regurgitators, and do not take them or their analysis seriously.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
