Weekly Corn Market Update 05/08/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week down 1.00-cent (~0.30%), settling at $3.3575/bushel. Price action this week took place in an 8.00-cent (~2.38%) range - the narrowest since the holiday-shortened week ending April 9th. All of this week's trading took place within the unremarkable price band we published last week.
The fundamental demand picture we first visited on March 13th improved overall this week. April 2021 futures for Crude Oil rose ~8.66% this week. Relevant livestock markets ended mixed on the week, with Live Cattle futures for April 2021 higher by ~6.23%, and Lean Hog futures for April 2021 lower by ~6.33%. We take this stabilization in the demand side with a grain of salt, given the looming supply-side concerns. According to the USDA's weekly Planting Progress report released on May 4th, planting is well-ahead of average. Of course, summer weather can change the picture dramatically. At this point, we find it challenging to create a convincing fundamental case for the bulls or the bears - only time will tell as the growing season unfolds.
On the technical side, Dec20 corn futures remain in a downtrend - though they failed to make a new contract low for the second straight week. Dec20 corn futures traded back-and-forth around their 10-day moving average throughout the week, managing another pair of closes above the 10-day to finish the week. In another sign of strength, Dec20 corn futures traded above their 20-day moving average for the first time since January 24th, though they failed to post a close above the 20-day. The spread between Dec20 and Mar21 corn futures narrowed 0.25-cents this week to 13.25-cents/bushel, while the direction is encouraging, the size of the move is lackluster. Friday's price action may indicate a breakout from a pennant, but further price action is needed to confirm that. Overall, the technical picture, as we see it, has improved, though remains murky.
In the corn options market this week, implied volatilities (the cost of options) traded mixed on the week. Nearer-term short-dated new crop options were higher, with the back of the new crop volatility curve slightly weaker. We find short-term option buying in front of Tuesday's WASDE release by the USDA as a likely explanation for the strength in near-term options.
Looking ahead to next week, we see a ~51.4% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.2375-$3.4750 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.0400-$3.6700 per bushel range. Price action beyond that would be considered extreme. Given the release of the WASDE on Tuesday, we would not be surprised to see price action in the noteworthy range.
Looking further ahead to the Fall 2020 Crop Insurance Price (the average settlement of Dec20 corn futures in October), we believe there is a ~52.8% chance the average will come in below this week's settlement of $3.3575/bushel. We continue to see a higher chance (~26.2%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~11.8%). 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.
