Corn and soybean prices have been trading in a sideways consolidation pattern for over a month. A price break out is eminent. Which way the market breaks out depends on the August USDA report, and trader reaction to the report.

Initially traders will watch the yield numbers released by USDA -- is it higher or lower than trade expectations, and by how much? Next, traders will focus on total supply, and changes to demand, and how that equates to ending stocks.

Ending stocks is a way to quickly measure how much supply is left over or expected to be left over after any crop year. The stocks-to-use percentage is a more detailed view.

How to calculate ending Stocks-to-Use percentage

When you compare both the ending stock, along with the stocks-to-use ratio against previous years, this percentage number is a fantastic indicator of whether current ending stock levels are at historically small amounts (and justification for higher prices), or plentiful amounts (often times when prices move lower).

To calculate the Stocks-to-Use ratio, take the ending stock number, and then divide that by the total demand usage number (provided on the USDA report) which can then be expressed as a percentage.

Currently the stocks-to-use ratio for old crop corn and soybeans is significantly tight, which justified the higher prices this spring and summer. USDA’s August report will be of utmost importance to know where new crop ending stocks will be, and how that correlates into stocks to use. This will set the tone for the rest of 2021. 

When market scenario planning, it is essential to be aware of all possibilities. Prices can work either higher or lower, so be ready to capture opportunities and minimize price risks.

By having a fundamental understanding of supplies, demand, ending stocks and the stocks-to-use ratio, it empowers you to make better marketing decisions for the current marketing year. It also allows you to think outside the box at possibilities in the future.

As you know, having the upper hand on possible price scenarios allows you to have more consistent marketing, thus keeping your farm on top!

Reach Naomi Blohm: 800-334-9779, Twitter: @naomiblohm and [email protected]

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