What Was the US Grain S&D Situation at the End of October?

• We already know what the US grain supply and demand situation was at the end of October by studying the market price, or national cash indexes. 

• Most of the indexes were at their lowest levels in 4 to 5 years telling us there was abundant supplies to meet demand. 

• Looking ahead, corn and soybean futures spreads paint interesting pictures for supply and demand in the latter stages of the marketing year, though these spreads can and will change as we go along. 

As if this week needed any more excitement, the Grains sector will see the release of the latest USDA Supply and Demand silliness Friday afternoon. I used to try to show people the foolishness of living and dying with each dropping from USDA, but I've moved past that and now just sit back and watch like it was a live action comedy. The older I get, the more I follow the advice of the late Charlie Munger who said (among other things), “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” One of the ways I try to be “consistently not stupid” is by ignoring government reports. You make your own call. 

Does this mean I'm not interested in fundamentals? To the contrary. My Market Rule #6 says “Fundamentals win in the end”. Yes, i"m interesting in fundamentals, but I'll take mine as the real variety rather than imaginary, thank you very much. What do I mean by this? I'm assuming that, like me, most of you took some sort of basic economics course either in high school or at University. If so, you were taught that market price is where the intersection of the supply and demand lines. The lower the price, the more supply there is in relation to demand. Conversely, the higher the price the less supply there is in relation to demand. Frankly, I don't care if you one adds, subtracts, multiplies, or divides between supply and demand, the bottom line is market price. 

In the Grains sector, what can we use for a general market price? Since I write for an international audience, I use national cash indexes (granted these indexes are priced per bushel rather than metric ton), but you can also use regional, local, port, whatever fits your situation best. I post a look at month end supply and demand, based on the five major grain market National Price Indexes, telling me: WHAT THE SUPPLY AND DEMAND SITUATION IS AT THAT PARTICULAR MOMENT. Here's what things looked like at the end of October 2024: 

CORN: The National Corn Index ($CNCI) was calculated at $3.82 on October 31, 2024. The end of September 2024 showed $3.93 with October 2023 coming in at $4.53. This was the lowest October month-end NCI since 2020’s $3.78. However, the US corn market’s Supply and Demand situation seems to have stabilized, despite continued weak national average basis indicating the 2024 crop was large.

SOYBEAN: The National Soybean Index ($CNSI) was calculated at $9.29 on October 31, 2024. The end of September 2024 showed $9.94 with October 2023 coming in at $12.38. This was the lowest month-end NSI since August 2020 at $9.01 and the lowest end of October NSI since 2019’s $8.52. The bottom line is there continued to be ample US supplies to meet demand.

SRW WHEAT: The National SRW Wheat Index ($CSWI) was calculated at $5.05 on October 31, 2024. The end of September 2024 shoed $5.09 with October 2023 coming in at $4.93. The US SRW wheat supply and demand situation seems to have stabilized, though the SWI near $5.05 has it in the upper 45% of its price distribution range (weekly closes only) over the past 10 years. The bottom line is US SRW wheat supply and demand is as it usually is: Neutral-to-bearish.

HRW WHEAT: The National HRW Wheat Index ($CRWI) was calculated at $5.12 on October 31, 2024. The end of September 2024 showed $5.25 with October 2023 coming in at $5.65. This was the largest end of October HWI since 2019’s $3.96. There continues to be ample supplies of US HRW wheat to meet demand. (Are you picking up on the theme?)

HRS WHEAT: The National HRS Wheat Index ($CRSI) was calculated at $5.64 on October 31, 2024. The end of September 2024 showed $5.72 with October 2023 coming in at $6.65. This was the largest end of October HSI since 2020’s $5.23.

That was difficult, right? Simply looking at the market price as the intersection of supply and demand, despite those numbers (real supply and demand) remaining unknown. I like to call this the Unknown Variable Solution. And as they say on the informercials, “But wait, there's more!”

We can also read what the commercial side of the market is expecting for supply and demand down the road, without using USDSA's made-up projections. Again, the variables of what turns out to be real supply and demand remain unknown, but we can read the thoughts of those actually involved with the underlying cash commodity. We do this by studying futures spreads. But here's where things  get fun, for I don't look at just the price difference between futures contracts (classic definition of futures spread) but the amount of calculated full commercial carry (cfcc) covered by that spread. Why? Just as 1.0 bb of US corn ending stocks isn't what it used to be (Remember the days when that was considered a bearish number?), the change in prices over time means X cents of carry covers different levels of cfcc. On the other hand, my scale of 33% or less is bullish, 67% or more is bearish, and everything in between varying levels of neutral hasn't changed. Speaking of ch-ch-ch-ch-changes (Thank you David Bowie), we can chart the changing outlook by the commercial side by plotting the cfcc covered by a market's futures spreads over time. 

Let's start with the 2024-2025 corn market. We can see that the commercial side has held a largely neutral short-term and intermediate-term view of supply and demand given the spreads have largely stayed between the 33% (green dashed line) and 50% (purple dashed line) levels of cfcc. Yes, early August saw the Dec-March spread (blue line) climb toward 60%, but has since backed off. On the other hand we have the May-July spread (brown line) consistently holding below the bullish 33% level. This tells us a couple different things: First, there could be weather-related problems with Brazil's 2025 crops, meaning Second, this could increase demand for US supplies later in the marketing year, tightening the overall S&D situation. We can also watch these spreads to see how they change as new tariffs are put in place and trade war tensions are ramped up as the US gets deeper into the 2024-2025 marketing year. 

It's a different story in the soybean market, though. Here we see futures spreads generally trending toward covering more cfcc. This is an indication US supplies are large, and demand remains a question down the road. In early August the November-Janaury spread (blue line) was testing the bearish threshold of 67% (dashed red line) before backing off through the start of delivery against the November issue. Take note of both the March-May (brown line) and May-July (yellow line) futures spreads working higher. This indicates the early surge in export demand for US supplies is seasonal, with the world's largest buyer expected to turn its attention, and business, back to Brazil once we get into February. 

• Soybeans Late Session Pop Pushes Rally
• Wheat Weakness Prevails on Thursday
• Corn Bulls Extend Gains on Thursday
• Sugar Prices Climb as Brazilian Real Strength Sparks Short Covering