Weekly Corn Market Update 07/24/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by 4.75-cents (~1.40%), settling at $3.3500/bushel. This week's price action took place in a 10.00-cent (~2.94%) range - the narrowest range since the week ending June 12th. All of the week's trading took place within the unremarkable bands we published last week.
The fundamental demand picture that we first visited on March 13th settled mixed for the week. April 2021 futures for Crude Oil rose ~1.52%. Live Cattle futures for April 2021 fell ~0.87%and Lean Hog futures for April 2021 climbed ~0.72% this week. The strength in these markets continues to be encouraging, though they remain below their end of February prices. We continue to maintain that a further shock to supply is required to fuel a fundamentally-driven rally, though we see this as less likely with each passing day.
The technical picture remains unclear, though the bear case is building. If one ignores the three weeks surrounding the USDA's release of its June quarterly reports, one could make the case that Dec20 corn broke down from a bear flag this week. However, the last time we saw a similar bearish breakdown, the market quickly rebounded. Dec20 corn futures display no clear trend, and various momentum indicators show conflicting readings. Of note, the spread between Dec20 and Mar21 corn futures settled for the week at 11.00-cents, widening 1.00-cent this week, a generally bearish signal.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations fell considerably for the third straight week. We are still actively looking to increase our exposure to volatility. We believe October and December at-the-money implied volatility under 18% represent an excellent opportunity for hedgers to protect themselves cheaply, and are approaching levels we'd consider to be a reasonable speculative buy for the experienced volatility trader.
Looking ahead to next week, we again see a ~52.5% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.2575-$3.4550 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.1325-$3.6275 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 ~52.9% chance the average will be below this week's settlement of $3.3500/bushel. We continue to see a higher chance (~9.6%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~2.6%). We now see a greater than 80% chance that 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.
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