Weekly Corn Market Update 07/17/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by 5.00-cents (~1.45%), settling at $3.3975/bushel. This week's price action took place in a 14.25-cent (~4.13%) true-range (measured from last week's settlement because of the gap in trading from there to Sunday//Monday's high). This week's trading took place within the unremarkable bands we published last week, though the week's low did tag the bottom of those bands.
The fundamental demand picture that we first visited on March 13th improved again this week. April 2021 futures for Crude Oil rose ~0.11%. Live Cattle futures for April 2021 rose ~1.10%and Lean Hog futures for April 2021 climber ~1.14% this week. These markets have been positive for the past several weeks, but they all remain below their end of February levels. The strengthening demand picture is encouraging, but we continue to believe that it will take further supply shocks to build a bullish fundamental case.
The technical picture remains unclear. Given the unpredictable uncertainty surrounding the weather over the next few weeks, we aren't surprised by this lack of clarity. The spread between Dec20 and Mar21 corn futures settled for the week at 10.00-cents, narrowing by 0.25-cents this week.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations fell considerably. We are actively looking to increase our exposure to volatility, particularly in the October serial expiration. We believe October at-the-money implied volatility under 20% represents an excellent way for hedgers to protect themselves.
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 $3.2975-$3.5150 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.1375-$3.7425 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 ~54.4% chance the average will be below this week's settlement of $3.3975/bushel. We continue to see a higher chance (~10.7%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~5.5%). For the first time this season, we see a greater than 75% chance the October average will finish between $3.00/bushel and $3.75/bushel. See the attached chart for a visual representation comparing our expectations for the Fall 2020 Crop Insurance Price for this week and last.
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, email, or by phone at (970)294-1379. Thanks again, and have a great week.
