Weekly Corn Market Update 03/20/20

December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by $0.0975/bushel (~2.61%) to settle at $3.6325/bushel. The 19.50-cent (~5.23%) range in corn this week was considerably larger than last week's 11.25-cent range - though relatively unremarkable given the increase in implied volatilities (the cost of options) we noted last week. Dec20 corn futures fell into the noteworthy band of our expectations, but rallied to settle the week within the range we consider to be unremarkable.

The fundamental case we visited last week has not improved. April 2021 futures for Crude Oil fell a further ~15.25% this week. Live Cattle and Lean Hog futures for April 2021 posted only small gains of ~0.52% and ~1.41%, respectively. We've heard rumors some ethanol plants are considering throwing in the towel and planning for the idling of plants due to low oil prices.

One fundamental highlight touted in the media this week was the announcement Friday morning of a sale of 756k metric tons of corn to China for delivery in the 2019/2020 marketing year. It seems likely this is bargain hunting as May 2020 corn futures (the current benchmark for old crop corn) hit a fresh contract low of $3.3200/bushel on Wednesday. In our opinion, this purchase is nothing upon which to hang one’s hat (or hopes), accounting for only 29.754 million bushels or roughly 0.22% of 2019/2020 U.S. production estimates. In other words, even if China purchased this same amount every week for a year, it would only equal 11.30% of estimated 2019/2020 U.S. corn production.

On the technical side, Dec20 corn futures remain in a downtrend. On Monday, Dec20 corn futures violated the lower bound of the channel we mentioned last week, and daily settlement prices remained below the channel for the rest of the week. Wednesday's price action felt mildly-cathartic, with a sharp low on heavy volume. Thursday and Friday brought powerful, but failed, rallies back into the channel as they met equally forceful selling, which pressured Dec20 corn futures below the channel once again. In light of Friday's aggressive selloff in the equity markets after the close of grain trading, we would not be surprised to see an early retest of Wednesday's low in Dec20 corn futures this week.

In the corn options market this week, we note another considerable increase in implied volatilities (the cost of options) throughout new crop expirations. This increase was again particularly evident in near-term short-dated new crop options. We expect short term implied volatilities to remain firm ahead of the USDA's release of its quarterly Grain Stocks and Prospective Plantings reports on March 31st.

Looking ahead to next week, we see a 53.10% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.4800-$3.7725 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.2200-$3.9950 per bushel range. Price action beyond that would be considered extreme.

Looking further ahead to the Fall 2020 Crop Insurance Price (the average settlement of Dec20 corn futures in October), we again see a shift to the downside corresponding with this week's lower settlement price. We believe there is a 57.32% chance the average will come in lower than this week's Dec20 corn futures settlement of $3.6325/bushel.

Given the uncertain times in both the agricultural and broader worlds, we feel we should include our thoughts on what to do at times like these. First, stay disciplined and work your marketing and risk management plan. If you don't have a marketing and risk management plan, then get one - it's virtually impossible to stay disciplined without one. Second, remember that all losses are not equal. Losing $0.50/bushel is worse than losing $0.10/bushel. If you're willing to bet the farm on higher prices, that's your choice, but make that choice intentionally, not just because you don't know what else to do, or don't want to think about marketing and risk management. Have a plan for what you'll do if you're wrong and prices finish lower than you expect. There is never a good time to bury your head in the sand.

Instead, take control of your marketing and risk management plan. The season is far from over, and volatile markets create opportunities. A well-designed plan can help protect you from and even capitalize on volatile markets. Make sure you're working with a seasoned advisor that understands how to manage risk in a variety of market conditions.

Thanks for taking the time to read, and we look forward to your questions and feedback. Please feel free to contact us via our contact form, Facebook, Twitter, by phone at (970)294-1379, or by email. Best of luck this week, and we hope you enjoyed this week's report.