Weekly Corn Market Update 08/07/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week lower by 6.25-cents (~1.91%), settling at $3.2075/bushel - the lowest weekly settlement price of the year. This week's price action took place in a 9.00-cent (~2.75%) range. The week's low of $3.2000/bushel represented a contract low for Dec20 corn. All of this week's trading took place within the unremarkable band we published last week.
The fundamental demand picture that we first visited on March 13th settled higher for the week. April 2021 futures for Crude Oil rose ~2.51%. Live Cattle futures for April 2021 and Lean Hog futures for April 2021 notched gains of 0.41% and 0.76%, respectively. We continue to believe that a further shock to supply is required to fuel a fundamentally-driven rally, and we see the odds of that as less likely with each passing day.
Technically speaking, Dec20 corn futures remain in a downtrend. As we suggested might happen in last week's update, an early bounce this week quickly faded as selling resumed. Given the USDA's release of its monthly WASDE report next Wednesday, we don't believe the technicals will matter much next week. Of continued note, the spread between Dec20 and Mar21 corn futures widened again this week, settling at 12.00-cents, 0.75-cents wider than last week - a bearish signal.
In the corn options market this week, implied volatilities (the cost of options) for new crop expirations improved across the board. Despite this rebound in implied volatility, we still believe options should play a substantial role in the hedging portfolio. Again this week, we feel compelled to note that we continue to see short-term new crop volatility in the soybeans as significantly cheaper than similar expirations in the corn market. As such, we continue to focus on adding volatility to our hedge portfolios on the soybean side.
Looking ahead to next week, we see a ~50.4% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.0975-$3.3275 per bushel range to be unremarkable. Noteworthy moves would extend to the $2.8825-$3.5850 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 ~53.5% chance the average will be below this week's settlement price of $3.2075/bushel. Notably, we now see a nearly 40% chance that the October average will be between $3.00/bushel and $3.25/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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