Carryover and S&D
The three most important factors in governing the future price direction of a given commodity are carryover, carryover, carryover.
What is the current carryover, aka ending stocks? Is it more than enough to last until the next crop is harvested? If not, the price will rise to make sure the world does not run out of that commodity. That is the job of the market; to make sure we never run out of a commodity. Higher prices require users to reduce consumption by cutting back production, use alternative commodities or shut down operations temporarily.
Is the carryover getting larger or smaller? If the carryover is getting smaller month by month, prices will not go down and stay down. Pipeline supply is the number of bushels or tons that are moving through the consumption “pipeline” from the farmers to the end users. Those are the bushels in the trucks, trains, barges, ships, or at the feed mills, processor plants, feed bins, etc.
For US domestic corn, the pipeline supply is about 30 days’ worth of use. For domestic soybeans, the pipeline supply is in the 22-day range. As the projected carryover approaches pipeline supply, the price will rise because just one unexpected event could do away with 5 to 10 days’ worth of use very quickly.