Weekly Corn Market Update 05/01/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week unchanged, settling at $3.3675/bushel for the second straight week while trading in a 12.25-cent range (~3.64%). All of this week's trading took place within the unremarkable price band we published last week.
The fundamental picture we first visited on March 13th improved this week. April 2021 futures for Crude Oil rose ~1.07% this week. Relevant livestock markets ended the week higher, with Live Cattle futures for April 2021 higher by ~2.23%, and Lean Hog futures for April 2021 higher by ~4.99%. Thursday's news that the White House is considering new tariffs on China tempered our improved fundamental view.
On the technical side, Dec20 corn futures remain in a downtrend. However, Dec20 corn futures failed to make a new contract low this week - an occurrence avoided only two other times in the last eleven weeks. Another encouraging sign for the bulls was a pair of consecutive closes above the 10-day moving average to finish the week. However, the spread between Dec20 and Mar21 corn futures widened this week by a full cent to 13.50-cents/bushel. As we've mentioned earlier, we see expansion in this spread as confirmation of the bearish tone in the marketplace. Overall, the technical picture, as we see it, is murky. Wednesday's low of $3.2725/bushel may have marked the second low in a double-bottom, or Dec20 corn futures could simply be consolidating for another push lower. We wouldn't bet the farm on any outcome.
In the corn options market this week, implied volatilities (the cost of options) decreased across the board. Nearer-term short-dated new crop options led the way down as they led the rise last week. In general, in the meat of the new crop growing and marketing cycle, we see a decrease in the demand for upside options relative to downside options. This decrease is reflected in our look ahead to the Fall 2020 Crop Insurance Price with higher probabilities of reasonable upside moves indicated. We wouldn’t blame you for seeing this as counter-intuitive, so take a look at our article on Modern Option Trading or Contact Us for an explanation.
Looking ahead to next week, we see a ~50.4% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.2650-$3.4725 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.1075-$3.6400 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 ~54.4% chance the average will come in below this week's settlement of $3.3675/bushel. We continue to see a higher chance (~26.5%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~11.4%). Though, as mentioned in the options market section, we do see a notable increase in probabilities for the $3.25-$4.25/bushel brackets of our distribution. 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.
