Weekly Corn Market Update 07/10/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by 8.75-cents (~2.48%), settling at $3.4475/bushel. This week's price action took place in an 18.25-cent (~5.16%) range - notably more calm than the prior two weeks. All of this week's trading took place within the unremarkable bands we published last week. Trade was choppy this week, as the markets raced to chase flip-flopping weather forecasts. Interestingly, despite a few volatile weeks, Dec20 corn is virtually unchanged from June 5th, when it settled $3.4525.
The fundamental demand picture that we first visited on March 13th settled mixed this week. April 2021 futures for Crude Oil rose ~0.99%, and Live Cattle futures for April 2021 rose ~1.47%. However, Lean Hog futures for April 2021 fell by ~1.31% this week. The USDA released its monthly World Agricultural Supply and Demand Estimates (WASDE) this week, leaving yield estimates unchanged and showing softening demand. The market initially showed little response, but selling pressure built with news that President Trump believes there will be no Phase 2 China Trade Deal. We expect choppy, weather-based trade to continue over the next several weeks leading up to the August WASDE report.
On the technical side, we don't see much to sway our opinions one way or another. The market has retreated from an overbought-condition and closed below the crucial $3.5325-$3.5525/bushel level we mentioned last week. The spread between Dec20 and Mar21 corn futures settled at 10.25-cents, narrowing by 1.25-cents this week. With moving averages all over the place, and no definite patterns forming, the technical picture is exceptionally murky. The murkiness seems reasonable to us since we doubt even the most faithful believers in technical analysis believe a price chart can predict the weather.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations softened. We see current levels as roughly fair and would look for price movement to naturally bring us into and out of volatility positions. We continue to believe that a well-managed option position is essential to any risk management program.
Looking ahead to next week, we see a ~53.7% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.3050-$3.6275 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.1050-$3.9475 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 ~55.7% chance the average will be below this week's settlement of $3.4475/bushel. The odds flipped again this week. We now see a higher chance (~12.4%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~10.0%). 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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