Weekly Corn Market Update 04/03/20

December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by $0.1350/bushel (~3.71%) to settle at $3.5075/bushel. Dec20 corn futures traded in an 18.00-cent range (~4.94%) this week. This week's settlement was just below the low-end of the unremarkable range we published last week ($3.5150/bushel). This week's low of $3.4675/bushel pushed further into the noteworthy range but stayed well away from what we would consider an extreme move. As we mentioned last week, this wasn't surprising given the release of the USDA's Quarterly Grain Stocks and Prospective Plantings reports on the 31st.

The fundamental case we first visited three weeks ago weakened again this week. April 2021 futures for Crude Oil declined ~0.37% this week. Live Cattle and Lean Hog futures for April 2021 posted losses of ~4.45% and ~5.86%, respectively, this week. Given those factors and the increase in planting expectations for 97 million acres of corn released by the USDA this week, it remains difficult for us to see a bullish fundamental case for corn. The one bright spot fundamentally was the purchase of ~22.3 million bushels of corn by China reported Friday. Though, as we discussed two weeks ago, we see this level of buying activity as having a relatively small impact on total corn demand. As usual, we recommend the careful management of risk, regardless of one's fundamental outlook. 

On the technical side, Dec20 corn futures remain in a downtrend. Dec20 corn futures broke down from the bear flag we mentioned last week to form a new contract low at $3.4675/bushel. A variety of momentum indicators indicate Dec20 corn futures are in oversold territory while displaying a bullish divergence from recent price action. If there's anything on which the bulls can hang their hats, it's this. But, the truth is no one knows where the bottom of this market is; therefore, we believe the only reasonable course is measuring and managing risk.

In the corn options market this week, implied volatilities (the cost of options) were mixed. Implied volatilities for expirations in the heart of the growing season showed strength, while the near and far terms were slightly weaker to varying degrees. 

Looking ahead to next week, we have a shortened trading week due to the Good Friday holiday. We see a ~53.9% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.4075-$3.5950 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.2575-$3.7075 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), this week's price action shifted our expectations slightly lower corresponding with the selloff. We believe there is a ~55.2% chance the average will come in lower than this week's settlement of $3.5075/bushel for Dec20 corn futures. Of note, for the first time this season, we see a marginally higher chance (about 18.4%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (about 17.5%). See the attached chart for a distribution of expectations.

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.