Weekly Corn Market Update 06/12/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week down 2.25-cents (~0.65%), settling at $3.4300/bushel - though they did manage to set a fresh 8-week high of $3.4850/bushel. This week's price action took place in a relatively narrow 8.50-cent (~2.46%) range. 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 weakened noticeably this week. However, given the recent strength in these outside markets, a pullback should not be too concerning. April 2021 futures for Crude Oil fell ~6.58% this week. Relevant livestock markets were lower as well. Live Cattle futures for April 2021 dropped ~2.08%, and Lean Hog futures for April 2021 fell ~1.51%. The USDA released its monthly World Agricultural Supply and Demand Estimates (WASDE) for June. Small, and mostly offsetting changes in the 2019 crop year statistics netted little overall change. At this point, we continue to believe the fundamental focus should remain on the supply side of the equation, where, it seems, only a significant supply shock could improve the picture.
On the technical side, Dec20 corn futures remain in a long term downtrend. Dec20 corn futures spent some time this week flirting with the trendline that has defined the upper end of this downtrend since January. Dec20 corn futures may move above this trendline in the next week or two. Though, we would not necessarily see that as a reversal of the long-term trend, but rather a continuation of the ongoing consolidation in the market since the contract low of $3.2550/bushel on April 21st. The spread between Dec20 and Mar21 corn futures was unchanged this week at 11.75-cents/bushel. Overall, we still find the technical picture inconclusive.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations were lower across the board. Near-term short-dated new crop options showed the most weakness. We continue to see short-dated new crop July options as useful tools for hedgers. Though, with expiration for those options looming in just two weeks, time decay will be rapid. So, anyone using them must manage those positions aggressively and appropriately.
Looking ahead to next week, we see a ~52.0% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.3475-$3.5225 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.2050-$3.7150 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 ~55.2% chance the average will come in below this week's settlement of $3.4300/bushel. We continue to see a higher chance (~16.8%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~10.2%). Of note, we now see a 61.3% chance that the October average will land between $3.00/bushel and $3.75/bushel - marking the first time this season that a three of our 25-cent buckets totaled more than 60% of the distribution. See the attached chart for a visual representation comparing our expectations for the Fall 2020 Crop Insurance Price for this week and last.
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