Weekly Corn Market Update 08/28/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week higher by 18.75-cents (~5.51%), settling at $3.5925/bushel. This week's price action took place in a 19.50-cent (~5.73%) range. This week's settlement was within the upper-noteworthy band we published last week.
The fundamental demand picture that we first visited on March 13th settled mixed this week. April 2021 futures for Crude Oil climbed ~1.68%. Live Cattle futures for April 2021 fell ~2.02%, and Lean Hog futures for April 2021 gained a modest ~0.19%. Continued concerns about supply drove the market higher this week as uncertainty about final yields and harvested acres remained high. In addition to the derecho storm's damage two weeks ago, continuing dry conditions throughout the corn belt are adding additional pressure to yield estimates. Given the high uncertainty level, we continue to recommend looking to the market for answers and staying market-neutral.
The technical picture is interesting this week. Various momentum indicators are now clearly signaling overbought conditions on a daily chart. There is significant overhead resistance in the low 360's where a meaningful low in March, the July highs, and the current 200-day moving average all converge. We believe it will require significant reductions in the market's production expectations to push prices through this level meaningfully. The spread between Dec20 and Mar21 posted its largest absolute change of the year, narrowing by 2.50-cents this week, settling at 10.00-cents. This narrowing would tend to confirm the week's bullish action, but extreme moves like this can also be indicators of turning points in the market. Overall, given the speed of the recent rally, overbought conditions, and the extreme move in the Dec20/Mar21 futures spread, we believe the market could be vulnerable to a short-term pullback.
Implied volatilities (the cost of options) rallied sharply this week. With the massive increase in implied volatility in the soybeans, we are now seeking a more balanced mix of options in the hedging portfolio. We continue to see options as an essential part of the hedging strategy, though we are less aggressive option buyers at these levels.
Looking ahead to next week, we see a ~54.1% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.4900-$3.7200 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.3350-$3.9775 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 ~55.6% chance the average will be below this week's settlement price of $3.5925/bushel. See the attached chart for a visual representation comparing our expectations for the Fall 2020 Crop Insurance Price for this week and last. This week, we have fully-switched to nickel price buckets since a more-granular view is becoming useful as October approaches.
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