Weekly Corn Market Update 01/15/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 19.50-cents (~4.43%), settling at $4.6000/bushel. This week's price action took place in a 29.25-cent (~6.64%) range. This week's settlement was 2.50-cents higher than the notable band we published last week, and the week's high was 8.00-cents above that level. Dec21 corn futures set another contract high this week at $4.6550/bushel.
Our corn demand index was up 1.75% this week, underperforming the booming market in Dec21 corn futures. Fundamental discussions should still note concerns over COVID-19 and uncertainty surrounding future executive branch policy. These two factors continue to provide potential sources of volatility. They are of particular concern where they might impact U.S. and Chinese trade relations. The USDA released monthly, quarterly, and annual reports last week, which reflected significantly lower stocks in corn and soybeans that fueled the rally.
Technically speaking, Dec21 corn futures remain in an uptrend that started from the August 2020 lows. Both daily and weekly momentum indicators remain in extremely overbought territory. Though, some daily momentum indicators are beginning to diverge with price action. Additionally, Dec21 corn futures continue to extend their upside breach of the channel that contained the rally from August until four weeks ago. We still would not be surprised to see a pullback to the $4.10-$4.12/bushel range.
Liquidity in the short-dated options market for the 2021 crop year continues to improve, though still somewhat illiquid in places. Adequate liquidity in the Dec21 options expiration continues. Excepting the short-dated February expiration, implied volatility for options on the 2021 corn crop rose again this week, with the heart of the growing season leading the way. Given the high prices of options, we would use the minimum number necessary to manage production uncertainty. We continue to believe that implied volatility has not risen to the point where a speculative short volatility bet is justified. We believe the short-dated June expirations offer the best value for hedgers, particularly if spread against the short-dated August or September expirations. However, liquidity concerns could still prevent establishing positions at favorable levels. We believe the newly-liquid March 2022 expiration offers a better value for those inclined to longer-term hedges than the December 2021 expiration. See the chart below for a comparison of our closing at-the-money model volatilities for this week and last.
Looking ahead to next week's holiday-shortened trading in Dec21 corn futures, we would consider movement within the $4.4725-$4.7500 per bushel range to be unremarkable. Notable moves would extend to the $4.3400-$4.9350 per bushel range. Price action beyond that would be extreme. You will find a chart comparing these levels to the corresponding weekly price action below. Be sure to visit our Twitter page to vote in the poll we hold there each week. While you are there, please give us a follow.
Looking at the Spring and Fall prices for crop insurance this week, both distributions shifted higher due to the rally. The spring price distribution narrowed slightly in large part due to the passage of time. At the same time, the distribution for the fall price broadened on increases in implied volatility. See below for distribution and cumulative probability charts for both the Spring and Fall crop insurance prices.
Lastly, we would like to take a few seconds to remind you that February is almost here. February is when we typically begin our Quartzite Precision Marketing for a given crop year in earnest. Now is the time to be thinking about your 2021 marketing plan. Please take a look at our Quartzite Precision Marketing program for corn and soybean producers - it may be right for you.
Thanks for taking the time to read. 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. Have a great week.
