Weekly Corn Market Update 09/11/20
December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week higher by 10.50-cents (~2.93%), settling at $3.6850/bushel. This week's price action took place in a 13.00-cent (~3.63%) range. All of this week's trading was within the unremarkable bands we published last week.
The fundamental demand picture that we first visited on March 13th again settled mixed this week. April 2021 futures for Crude Oil dove ~5.57%, their second straight weekly drop of more than 5%. Live Cattle futures for April 2021 rose by ~1.59% while Lean Hog futures for April 2021 were a standout this week, posting a ~7.00% gain. Dec20 corn futures posted steady gains throughout the week and continued to build on them after the USDA released its monthly WASDE report on Friday.
The technical picture continues to be interesting this week. The resumption of the rally pushed a variety of momentum indicators back into overbought territory; notably, we are observing some divergence from between those indicators and price action. This week, Dec20 corn futures broke through and settled the week above, the price level in low 360's we mentioned two weeks ago. The USDA significantly reduced supply estimates in its WASDE report this week, as we suggested would be required to push prices above the low 360's. We do question whether the reduced estimates will be enough to hold and build on this breakout. The spread between Dec20 and Mar21 corn futures narrowed by 0.75-cents this week, settling at 9.75-cents, the narrowest weekly settlement since March 13th.
Implied volatilities (the cost of options) finished mixed but little changed on the week. We continue to see options as an essential part of any hedging strategy. However, as certainty begins to build around final yields, options will play a decreasing role in the risk management strategies we implement for our clients.
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 $3.5775-$3.8100 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.4025-$4.0575 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 price of $3.6850/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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