Weekly Corn Market Update 04/24/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by 6.75-cents/bushel (~1.97%), settling at $3.3675/bushel. Dec20 corn futures traded in an 18.00-cent range (~5.24%) the broadest range in percentage terms of the year. The week's low of $3.2550/bushel extended well into the noteworthy bands we published last week and marked a new contract low. However, Dec20 corn futures rallied to settle within the unremarkable range we released last week.
The fundamental case we first visited on March 13th settled mixed this week, though overall, we see it as more negative. April 2021 futures for Crude Oil fell ~12.88% this week. Relevant livestock markets ended mixed on the week, with Live Cattle futures for April 2021 lower by ~1.71%, and Lean Hog futures for April 2021 higher by ~5.43%. The biggest news of the week occurred on Monday when Crude Oil futures for May 2020 traded at a negative value the day before their last trading day. Given the shortage of storage, the expense of shutting-in production, and the occasional negative prices of which we've heard reports for cash crude, we do not find negative pricing surprising or irrational - though the speed and degree of the move were eye-opening. We do not believe corn can become a liability to the same degree or manner that crude oil did. While not impossible, it is highly unlikely because corn can be more easily stored, and is not toxic should it need disposal. Conceivably, producers could till excess corn back into the field, rather than pay to have it hauled away.
On the technical side, Dec20 corn futures remain in a downtrend, posting another new contract low as they've done for eight of the past ten weeks. The rally from Tuesday's lows relieved oversold conditions on various momentum indicators. While Tuesday's price action was similar to a washout bottom, a more aggressive flush on higher volume would have been a better indication of a bottoming process. Notably, the spread between Dec20 and Mar21 corn futures widened this week by 0.75-cents/bushel to 12.50-cents/bushel. As we mentioned last week, we see expansion in this spread as a general confirmation of the bearish tone in the marketplace. 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) increased across the board. Nearer-term short-dated new crop options led this rally. Given the broadest weekly percentage price range of the year, this increase should not be surprising. While we still think options are an essential part of any hedging strategy, we believe they are less attractive at these levels and should make up a smaller portion of that strategy than earlier in the year.
Looking ahead to next week, we see a ~52.0% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.2400-$3.4900 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.0300-$3.6850 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 ~55.4% chance the average will come in below this week's settlement of $3.3675/bushel for Dec20 corn futures. We continue to see a higher chance (~26.3%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~11.2%). This week's price action shifted our overall expectations lower, though the increases in implied volatility noted above also widened the distribution slightly. Of note, we now see a greater than 5% chance the average could settle below $2.5000/bushel. See the attached chart for a visual representation of our expectations for the Fall 2020 Crop Insurance Price from this week and last.
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. As fieldwork continues, we hope you have a safe and successful spring season. Best of luck next week, and we hope you enjoyed this week's report.
