Weekly Corn Market Update 09/18/20

December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week higher by 10.00-cents (~2.71%), settling at $3.7850/bushel. This week's price action took place in a 17.50-cent (~4.75%) 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 jumped ~7.43%, rebounding after two straight weeks of heavy losses. Live Cattle futures for April 2021 rose by ~1.03% while Lean Hog futures for April 2021 gave back ~1.38% after their strong rally last week. 

The technical picture continues to be interesting this week. The continued rally pushed some momentum indicators further into overbought territory, while others continue to diverge from price action. Dec20 corn futures have shown continued strength after the breakout we noted last week. We believe the next significant upside price level is around the spring crop insurance price of $3.88/bushel. The spread between Dec20 and Mar21 corn futures narrowed by 0.75-cents this week, settling at 9.00-cents, the narrowest weekly settlement since February 7th, and a minor confirmation of the rally.

We want to add a short note this week about our experience with violent moves like the rallies we've seen recently in corn and beans. The beans have been particularly violent, the corn somewhat less, so perhaps this applies more to the beans. It's been our experience that moves that begin feeding on themselves and become "parabolic" are tough to trade directionally. These moves can go much farther than imagined, or reverse violently with little or no warning. Also, given the rise in implied volatility, we no longer see the bargains in option prices we've noted several times leading up to this rally (07/17/20, 07/24/20, 07/31/20, 08/07/20, 08/14/20, 08/21/20). As such, we feel the need for sound risk management is particularly high. We firmly believe fading or chasing this bean rally is a dangerous game, and there will likely be losers among the ranks of both camps. As for us, we'll be sticking to our strategy and adjusting our client portfolios as the market warrants.

 Implied volatilities (the cost of options) finished significantly higher on the week. We continue to see options as an essential part of any hedging strategy. However, given the high levels of implied volatility and the late stage of the growing season, we're working to reduce the number of options in our client portfolios and replace them with hard-sales in the cash and futures markets.

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 $3.6525-$3.9525 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.4650-$4.2675 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 ~55.1% chance the average will be below this week's settlement price of $3.7850/bushel. See the attached chart for a visual representation comparing our expectations for the Fall 2020 Crop Insurance Price for this week and last.

Thanks for taking the time to read, and we look forward to your questions and feedback. Please feel free to contact us via our contact form, Facebook, Twitter, email, or phone at (970)294-1379. Thanks again, and have a great week.