Weekly Corn Market Update 10/02/20

December 2020 (Dec20) corn futures (the benchmark for new-crop corn) finished the week higher by 14.50-cents (~3.97%), settling at $3.7975/bushel. This week's price action took place in a 25.00-cent (~4.10%) range. The week's high of $3.8550/bushel was 6.50-cents into the notable band we published last week, and the weekly settlement was 0.75-cents into that band. We've not seen a higher weekly high or settlement since the week ending March 6th.

The fundamental demand picture that we first visited on March 13th settled mixed this week - though weaker overall in our estimation. April 2021 futures for Crude Oil tumbled ~6.76%. Live Cattle futures for April 2021 rose ~0.54%, while Lean Hog futures for April 2021 fell by ~0.96%. The USDA's Wednesday release of its quarterly Grain Stocks report fueled a rally to levels not seen since March. Fundamental traders continue to focus on incoming yield data and the USDA's release of its monthly WASDE report next Friday.

The technical picture continues to be interesting this week. This week's rally pushed various momentum indicators back to near overbought levels on the daily chart. Though, the divergences in these indicators should be a concern for bullish players. The picture isn't as clear on the weekly chart, with various momentum indicators in disagreement. We continue to see the next significant upside level in the area of $3.88/bushel, with downside levels in the low $3.60s and low $3.50s. The spread between Dec20 and Mar21 corn futures widened by 1.50-cents this week, settling at 9.50-cents - another caution flag for the bulls.

Two weeks ago, we included this short note, and we feel compelled to reiterate it again after the whipsaws we’ve seen since first posting it:

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.

We continue to believe this is an important way to view the market at least through the end of the coming week, and likely for several more weeks.

 Implied volatilities (the cost of options) finished higher on the week. We see less value in them than we did a week ago. At this point in the season, and at the levels, we're trying to pare our clients' option positions down to the minimum necessary to account for remaining yield uncertainty and cash demands.

Looking ahead to next week, we see a ~51.7% chance that Dec20 corn futures will finish the week lower. We'd consider movement within the $3.6675-$3.9450 per bushel range to be unremarkable. Noteworthy moves would extend to the $3.4900-$4.1750 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 to the Fall 2020 Crop Insurance Price (the average settlement of Dec20 corn futures in October), we believe there is a ~52.2% chance the average will be below this week's settlement price of $3.7975/bushel. The average began accumulating Thursday and Friday. With slightly more than 9% of the total observations collected, the average is $3.8125/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.