Weekly Corn Market Update 01/22/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 29.75-cents (~6.47%), settling at $4.3025/bushel. This week's price action took place in a 34.25-cent (~7.45%) range. This weekly settlement was 3.75-cents into the extreme-down band we published last week, and the week's low was 5.75-cents into that band.
Our corn demand index was down ~0.35% this week, significantly outperforming 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.
Technically speaking, Dec21 corn futures remain in an uptrend that started from the August 2020 lows. However, this week's reversal may prove to be the undoing of that trend - time will tell. The week's price action relieved overbought conditions across most momentum indicators on a daily chart. However, some weekly momentum indicators continue to indicate froth in the marketplace. 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 generally. Adequate liquidity in the Dec21 options expiration continues. Though, Friday's extreme movement led to some illiquidity across the curve during the session. We expect liquidity to return if the market calms next week. Implied volatility in the front of the curve was higher this week, while the back months lost some ground. Given the continued high prices for options, we would use the minimum number necessary to manage production uncertainty. We believe the short-dated June expiration still offers the best value for hedgers, especially if spread against the short-dated September expiration. We also see a good opportunity in the time-spread from short-dated September to December, particularly in the 20-delta put region. 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 trading in Dec21 corn futures, we would consider movement within the $4.1575-$4.4675 per bushel range to be unremarkable. Notable moves would extend to the $4.0225-$4.6400 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 lower due to the selloff, and both narrowed. For the Spring Price, decreasing time outpaced increased short-term implied volatility. In contrast, diminished long-term implied volatility levels narrowed the distribution for the Fall Price. See below for distribution and cumulative probability charts for both the Spring and Fall crop insurance prices. We are adding a third chart to the Fall Price section this week to highlight the week-over-week distribution changes - let us know what you think.
Lastly, we would like to take a few seconds to remind you that February is only a week away. February is when we typically begin our Quartzite Precision Marketing program for a given crop year in earnest. Now is the time to think 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.
