Weekly Corn Market Update 07/31/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by 8.00-cents (~2.39%), settling at $3.2700/bushel - the second-lowest weekly settlement price of the year. This week's price action took place in an 11.00-cent (~3.28%) range, and the week's low of $3.2550/bushel was a quarter-cent below 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 fell ~0.73%. Live Cattle futures for April 2021 rose ~1.65%and Lean Hog futures for April 2021 fell ~2.20% this week. The market shrugged-off a Thursday announcement of record-setting sales to China. We tend to see this as Chinese buyers capitalizing on low prices relative to recent history, rather than an increase in demand. We continue to believe that a further shock to supply is required to fuel a fundamentally-driven rally. Though, we see the odds of a supply shock as less likely with each passing day.
Technically speaking, we view Dec20 corn futures as having resumed their downtrend. However, this week's action has started to push some momentum indicators into oversold territory. Given the mildly oversold conditions, we would not be surprised by a short-term bounce from these levels early next week. However, the lack of significant divergence in these momentum indicators from price action leads us to believe that any rebound is likely to fail. Of note, the spread between Dec20 and Mar21 corn futures widened again this week, settling at 11.25-cents, a quarter-cent wider than last week, and further confirming the recent bearish action.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations traded mixed with the front of the curve firmer and the back softer. Despite this rebound in nearer-term implied volatility, we still believe options should play a substantial role in the hedging portfolio. We feel compelled to note that we see short-term new crop volatility in the soybeans as significantly cheaper than similar expirations in the corn market. As such, we've been focusing on adding volatility to our hedge portfolios on the soybean side.
Looking ahead to next week, we see a ~51.9% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.1775-$3.3750 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.0100-$3.6000 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 ~53.4% chance the average will be below this week's settlement of $3.2700/bushel. We continue to see a higher chance (~14.5%) that the October average will come in below $3.00/bushel rather than above $4.00/bushel (~1.8%). 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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