Understanding Our Weekly Corn Market Update

Each week we publish our Weekly Corn Market Update. We thought it would be useful to write 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, especially speculative trading, in commodity interests carries significant risk, and we believe most producers should hire a qualified professional to manage risk, not speculate. We focus on new crop corn because of our focus on managing the complex risk associated with uncertain production - the known quantity of old crop corn is relatively straightforward to quantify and, therefore, to hedge. Our weekly update usually has two primary sections, a review of last week, and a look ahead.

Four sub-sections tend to comprise our review of last week. We generally open with a summary of how new-crop corn futures traded during the week, and anything we find notable about that. We then move on to two sections with brief notes about the fundamental and technical state of the market. We rarely use either of these analyses when managing risk for our clients. Both imply some predictability to the market, and we think we serve our clients best when we avoid holding speculative opinions. The last section in our review of the prior week is a short note about what happened in the market for new crop corn options. We believe options are an essential part of any new crop hedging strategy. In this section, we may occasionally note whether we think options should be a more or less substantial portion of a hedge portfolio based on our opinion of their price.

Two sub-sections form our usual look ahead. First, we look forward to next week. We provide a probability that the market will settle higher or lower for the week. It's important to note that there is no free lunch here. If we indicate a higher probability of futures settling up on the week, then that expected move would necessarily be smaller than its offsetting move to the downside. We talk a little about this phenomenon in our article on risk premiums - while not precisely the same situation, the expected value math is similar.

Additionally, we release three price ranges for the following week - unremarkable, noteworthy, and extreme. We would expect next week's settlement price to be within the unremarkable range about two-thirds (~68.27%) of the time, in the noteworthy band roughly one-quarter (~27.18%) of the time, and in extreme territory about one-twentieth (~4.45%) of the time. We use these ranges as a rough guide to making decisions about where to adjust hedges for our clients - though we'd actively discourage anyone else from using them without knowing exactly how and why we use them.

We also include a look ahead to the Fall Crop Insurance Price, and we give a similar probability analysis of higher or lower like we do with the weekly look ahead. Like the weekly number, the corresponding size of expected movements up or down offsets a greater or lesser probability in our opinion - there is no free lunch here either. We typically comment on any interesting facts about our distribution expectations, and we generally post a chart of the distribution in comparison to the prior week.

We want to add that we don't use much of the information we publish in our Weekly Corn Market Update to make risk management decisions for our clients. We do, however, derive much of the information we post each week from the data we use to make risk management decisions on behalf of our clients. There are no answers here. If you'd like to learn more about how we help our clients navigate difficult markets, please contact us via our contact form, Facebook, Twitter, by phone at (970)294-1379, or by email.