Weekly Corn Market Update 07/02/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week higher by 28.25-cents (~8.69%), settling at $3.5350/bushel. This week's price action took place in a 39.50-cent (~12.14%) range - marking the second straight week Dec20 corn futures notched their broadest range of the year. This week's trading pushed into the extreme territory we published last week, ticking a high of $3.6300/bushel, before settling the week inside the noteworthy band.
The fundamental demand picture that we first visited on March 13th improved this week. April 2021 futures for Crude Oil jumped ~4.62% this week. Relevant livestock markets rallied as well. Live Cattle futures for April 2021 rose ~2.96%, and Lean Hog futures for April 2021 improved by ~2.38%. The USDA released its quarterly Acreage and Grain Stocks reports this week. A significant reduction in acres in the acreage report served as the unforeseen supply shock we've said would be necessary to fuel a fundamental rally. The supply and demand equation is considerably less-clear than it has been for the last few months. However, we expect much of that uncertainty to clear over the next few weeks as we enter a critical phase of the growing season. Next Friday, July 10th, the USDA will release its monthly World Agricultural Supply and Demand Estimates. The market is likely to pay close attention to this report for updates on yield and demand.
On the technical side, Dec20 corn futures exploded from their downtrend-channel this week and settled above their 100-day moving average for the first time since January. The spread between Dec20 and Mar21 corn futures settled at 11.50-cents, unchanged on the week. Last week, we mentioned that we wouldn't be surprised to see a short-term bounce despite a generally bearish view of the chart. We were, however, impressed by the extreme nature of this week's bounce. Currently, we see the technical picture as inconclusive, with many conflicting signals. Notably, we consider the $3.5325-$3.5525/bushel area a critical inflection point for the market dating back to March. This area stalled the market's initial reaction to Tuesday's report, and the market settled the week inside that critical range.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations were decidedly higher. Last week we mentioned that December implied volatility was the lowest we'd seen since March, and that we would look to add December options to the portfolio opportunistically. This week December implied volatility rose to its highest level of the year. Given that rise, we are less-inclined to add options to the hedging portfolio, though we are not actively reducing at these levels due to increased uncertainty.
Looking ahead to next week, we see a ~53.8% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.3750-$3.7350 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.1600-$4.0900 per bushel range. Price action beyond that would be considered extreme. Included below is a chart showing the history of these price levels. Before using these levels in any way, we strongly urge you to review our guide to Understanding Our Weekly Corn Market Update.
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 $3.5350/bushel. The odds flipped this week; we now see a higher chance (~15.4%) that the October average will come in above $4.00/bushel rather than below $3.00/bushel (~11.8%). 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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