Understanding Our Weekly Corn Market Update - 2022 Edition

We publish our Weekly Corn Market Update each week to give people a general insight into how we do things. We thought it would be helpful to create a guide to interpreting that report - this is that guide. For starters, please notice that we used "understanding" in the title and not "using." Trading commodity interests carries significant risk. We believe most producers should hire a qualified professional risk manager, not guess where the market is going.

Our weekly update focuses on new crop corn because of Quartzite's focus on managing the complex risk associated with uncertain production. The hedging problem becomes much less complicated once the harvest is in the bin. We do not believe in charging to tell clients that 5,000 bushels are 5,000 bushels or wasting readers' time with a similar analysis.

Our weekly update has three primary sections. We start with a review of last week's price action. Then, we take a look ahead to next week and beyond. Finally, we close by summarizing what we did for our Quartzite Precision Marketing customers in the corn market that week.

We usually post all of the charts at the bottom of the update.

Look Back

Four sub-sections usually comprise our review of last week. We generally open with a summary of new-crop corn futures trading during the week and anything we find notable about that.

Then we move on with two sections containing brief notes about the market's fundamental and technical states. We usually refer to our Corn Demand Index (CDI) in the fundamentals section and publish a chart of the CDI with the rest of the charts at the bottom of the update. We think it is important to note that we rarely use either of these analyses when managing risk for our clients. Using them implies some predictability to the market. We think we serve our clients best when we treat market movements as essentially random and avoid predictive guesswork.

The last section in our review of the prior week notes what happened in the new crop corn options market. We believe options are a nearly-essential part of every producer's hedging strategy. This section lets you know if we think options are relatively cheap or expensive. We typically publish two volatility charts as well. One compares our closing at-the-money model volatilities from this week and last. The other displays this week's at-the-money volatilities from our model overlaid on the forward volatilities they imply between consecutive expirations.

Look Ahead

Two sub-sections form our usual look ahead. First, we look forward to next week. We release three price ranges for the following week - unremarkable, notable, and extreme. We would expect next week's settlement price to be in the unremarkable range about two-thirds (~68.27%) of the time, in the notable band roughly one-quarter (~27.18%) of the time, and in the extreme territory about one-twentieth (~4.45%) of the time. We use these ranges as a rough guide to making decisions about adjusting hedges for our clients. We generate these ranges with the volatility inputs in our options pricing model. We typically publish a chart of these levels with price action in corn futures overlaid throughout the season. We actively discourage anyone from using them without knowing exactly how and why.

We also include a look ahead to Crop Insurance Prices. In that discussion, we mention any changes from the prior week that we find interesting. We also intend to publish estimated medians and modes for crop insurance prices this year. Additionally, we publish charts that display our current expectations for the distribution and cumulative probability of crop insurance prices compared with last week's expectations. We derive this information from listed option prices for the relevant crop year.

Quartzite Precision Marketing Summary

We tend to close with a quick paragraph summarizing the moves and recommendations we made for our Quartzite Precision Marketing customers during the week. This summary is left intentionally vague. We make hedging decisions in real-time. Listing those trades specifically at the end of the week would not serve our customers or readers. This section's purpose is to give readers a general feel for our approach. Readers should not take it as a recommendation of any kind, even when we mention specific trades.

We want to add that we do not use much of the information we publish in our Weekly Corn Market Update to manage risk for our clients. However, we derive much of the information we post each week from the tools and information we use to manage risk for our clients. There are no answers here. If you would like to learn more about how we help our clients navigate challenging markets, feel free to contact us.

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