Weekly Corn Market Update 05/29/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week up 6.00-cents (~1.80%), settling at $3.3875/bushel. This week's price action took place in an 11.25-cent (~3.38%) range - the broadest weekly range since the week ending May 1st. The week's settlement price landed within the unremarkable price band we published last week, though the week's high of$3.4250/bushel pressed 3.00-cents into our notable band.
The fundamental demand picture that we first visited on March 13th settled higher on the week. April 2021 futures for Crude Oil rose ~4.72% this week. Relevant livestock markets were higher as well. Live Cattle futures for April 2021 climbed ~1.05%, and Lean Hog futures for April 2021 rose ~1.25%. While this continued improvement remains encouraging, we still note that these outside markets are significantly lower since the arrival of COVID-19. The USDA's weekly Crop Progress Report, released on the 26th, shows planting progress ahead of average at 88%. We expect the upcoming Monday release of the USDA's Crop Progress report to show planting progress at 95%. We continue to believe that it is challenging to build a bullish fundamental case without a weather event that severely limits supply.
On the technical side, Dec20 corn futures remain in a long term downtrend, though this week's strength is encouraging. Notably, the 10-day moving average is above the 20-day for the first time since January. Dec20 corn futures broke out of the pennant they have been forming. It's hard to say if this is the start of a significant up move, the evolution of the chart pattern into a bear flag, or a false-breakout - time will tell. The spread between Dec20 and Mar21 corn futures narrowed for the fourth straight week, contracting by a full-cent this week to 11.50-cents/bushel - continuing its bullish action. Overall, we find the technical picture inconclusive with conflicting short and long term signals.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations were higher across the board. Near-term short-dated new crop options showed the most strength. Given the week's wider-than-recent range and the recent declines we noted over the last few weeks, we do not find this strength surprising.
Looking ahead to next week, we see a ~51.1% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.2875-$3.4850 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.0825-$3.7000 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 ~55.6% chance the average will come in below this week's settlement of $3.3675/bushel. We continue to see a higher chance (~20.6%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~9.5%). See the attached chart for a visual representation of our expectations for the Fall 2020 Crop Insurance Price from this week and last. It's been three months since we started publishing our expectations for the Fall 2020 Crop Insurance Price on February 28th. We thought we'd include a bonus chart this week comparing our current expectations with those we originally published - we added that chart below the usual weekly comparison.
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