Weekly Corn Market Update 06/19/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week higher by 2.25-cents (~0.66%), settling at $3.4525/bushel - a tie for the highest weekly close since April 9th. This week's price action took place in a narrow 8.00-cent (~2.33%) 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 traded mixed this week. April 2021 futures for Crude Oil rose ~6.05% this week, gaining back most of last week's losses. Relevant livestock markets traded mixed with Live Cattle futures for April 2021 higher by ~1.31%, and Lean Hog futures for April 2021 down ~1.80%. Reports came out early Friday morning of a pickup in Chinese demand for US ag products, which could improve the demand picture - though we still believe a supply shock is the key to a bullish fundamental rally.
On the technical side, the picture remains murky. Dec20 corn futures finished the week above the trendline that has defined the downtrend since January. However, we do not yet see this as a reversal of the long term downtrend. Instead, we view it as continued consolidation since the contract low of $3.2550/bushel on April 21st. The spread between Dec20 and Mar21 corn futures contracted by a quarter-cent this week to 11.50-cents/bushel - a slightly bullish signal. 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 higher across the board. Near-term short-dated new crop options showed the most strength. Recent strength has brought implied volatilities to a level we consider mostly-fair. While options remain an essential part of our hedging strategy, we would not encourage actively adding options to the portfolio at these levels.
Looking ahead to next week, we see a ~52.5% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.3450-$3.5775 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.2100-$3.7600 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 ~54.6% chance the average will come in below this week's settlement of $3.4525/bushel. We continue to see a higher chance (~15.8%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~11.9%). 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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