Weekly Corn Market Update 06/05/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week up 6.50-cents (~1.92%), settling at $3.4525/bushel - posting their highest weekly close since the holiday-shortened week ending April 9th. This week's price action took place in a 13.50-cent (~3.99%) range - the broadest weekly range since the week ending April 24th. All of this week's trading took place within the unremarkable band we published last week.
The fundamental demand picture that we first visited on March 13th improved again this week. April 2021 futures for Crude Oil rose ~7.83% this week. Relevant livestock markets were higher as well. Live Cattle futures for April 2021 inched higher by ~0.02%. Lean Hog futures for April 2021 rose by ~4.31%. While this continued improvement remains encouraging, we still note that these outside markets are lower since the arrival of COVID-19. Despite an improving demand picture, we still believe that only a supply shock can drive a meaningful fundamental rally.
On the technical side, Dec20 corn futures remain in a long term downtrend, though this week's continued strength is encouraging. Dec20 corn futures are approaching the long-term trendline that started forming in late January. The 10-day moving average remains above the 20-day moving average, and Dec20 corn futures posted a pair of closes above the 50-day moving average for the first time since late January. It remains hard to say if a significant up move has begun, or we are witnessing the continued evolution of a bearish chart pattern. The spread between Dec20 and Mar21 corn futures expanded this week, widening by a 0.25-cents to 11.75-cents/bushel - this small expansion could be market noise, or it could be the first signal of weakness in the market's recent rally. Overall, we still 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 mostly lower across the board with short-dated September being the lone exception. Near-term short-dated new crop options showed the most weakness. Given the recent expansion in weekly trading ranges and the upcoming release of the USDA's monthly World Agricultural Supply and Demand Estimates - we think short-dated, new crop options for July are a good value for hedgers at current implied volatility levels.
Looking ahead to next week, we see a ~50.3% chance that Dec20 corn futures will finish the week higher. We'd consider movement within the $3.3600-$3.5425 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.2075-$3.7100 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 $3.4525/bushel. We continue to see a higher chance (~16.4%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~11.3%). See the attached chart for a visual representation of our expectations for the Fall 2020 Crop Insurance Price from this week and last.
Looking ahead to the 2021 marketing year, we used this week's strength to begin protecting our clients' 2021 production. These trades were small (less than 10% of expected 2021 production), option purchases. We plan to continue adding to these hedges if the market continues to rally.
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.
