Weekly Corn Market Update 04/09/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week unchanged, settling at $3.5075/bushel for the second week in a row. Dec20 corn futures traded in a 7.50-cent range (~2.14%) this week - the smallest range since the week ending February 14th. All trading this week took place well-within the unremarkable bands we published last week. However, Dec20 corn futures did set a new contract low of $3.4625/bushel. Given the holiday-shortened week, quiet trading, on light volume, shouldn't be of note. On Thursday, the USDA released its April World Agricultural Supply and Demand Estimates (WASDE) - there were no unexpected revisions.
The WASDE report did, however, begin to address the fundamental case we first visited four weeks ago, by lowering its expected ethanol demand for the 2019/20 marketing year by 375 million bushels. An increase of 150 million bushels of anticipated demand for feed partially offset the decrease in ethanol-based demand expectations. We find the increased feed demand a bit suspect, though a shift in feed rations from distillers dried grains to corn could explain it. Overall the USDA raised its ending stocks projection for the 2019/20 marketing year by 200 million bushels (~10.57%). On a positive note, OPEC, and several other oil-producing countries are considering production cuts in oil, which, if they come to pass, could help support ethanol prices. By the numbers, April 2021 futures for Crude Oil rose ~1.91% this week. Live Cattle and Lean Hog futures for April 2021 posted gains of ~6.51% and ~6.89%, respectively, this week. While these increases are encouraging, it's worth noting that these markets are still down an average of ~14.04% since the end of February.
On the technical side, Dec20 corn futures remain in a downtrend, posting another new contract low as they’ve done for six of the past eight weeks. Dec20 corn futures appear to be consolidating in a new bear flag formation. This week, the momentum indicators we mentioned last week are indicating less oversold conditions. As usual, regardless of your fundamental or technical view, we recommend careful and deliberate risk management - not speculation.
In the corn options market this week, implied volatilities (the cost of options) were mixed. For most expirations in the new crop cycle, changes were small. The standout was short-dated May volatility, which is considerably lower this week. We see this decrease as likely a result of decreased demand after Thursday's WASDE release combined with selling ahead of the long holiday weekend.
Looking ahead to next week, we see a ~53.1% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.4100-$3.5950 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.2275-$3.7450 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 believe there is a ~55.8% chance the average will come in lower than this week's settlement of $3.5075/bushel for Dec20 corn futures. We continue to see a marginally higher chance (about 17.5%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (about 16.7%). Overall, the passing of time, and reduced uncertainty in the market (as reflected by option premiums) has narrowed our expected distribution slightly. See the attached chart for a comparison of our current distribution expectations compared with last week's.
Enjoy the holiday weekend! 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.
