Weekly Corn Market Update 01/28/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 4.25-cents (~0.75%), settling at $5.6950/bushel. Dec22 corn futures established a new contract high of $5.7400/bushel on Thursday. This week's price action took place in a 16.75-cent (~2.96%) range. All of this week's trading took place within the unremarkable range we published last week.
Our corn demand index (CDI) rose 0.18% this week, underperforming Dec22 corn futures. Concerns over COVID-19 in the U.S. continue to drag on. The potential for problems elsewhere in the world and from new strains remains. Uncertain executive branch policy, tensions with China, increasing potential for conflict between Russia and Ukraine, Federal Reserve interest rate policy, and its impact on the Dollar remain significant concerns. We believe these factors will continue to provide potential sources of volatility for the foreseeable future. Increased input costs for corn production continue to impact acreage decisions this year, representing a significant upside risk.
Dec22 corn futures remain in a long-term uptrend supported by a trendline connecting the lows of 03/31/21 and 09/10/21. Additionally, significant support rests below the market between $5.26 and $5.35 per bushel. Most daily and weekly momentum indicators show a mix of neutral to overbought readings. Several momentum indicators on the weekly chart show divergence with price action since the old contract-high on 11/24/21. Bollinger Bands began to expand this week - beware of false breakouts. Carry spreads from Dec22 to Mar23, May23, and Jul23 finished the week within a quarter-cent of last week's settlement.
Except for short-dated March and April, Implied volatilities for the 2022 crop rose this week and remain high relative to recent years before the 2021 crop year. The Dec22 options series led the curve higher this week. We now believe expirations beyond Dec22 may offer the best opportunity for long-term hedgers, but only with careful execution as those series are illiquid. See the charts below for more details. One compares our closing at-the-money model volatilities for this week and last. The other compares our current model volatilities with the forward volatilities they imply between consecutive expirations.
Looking ahead to next week's trading in Dec22 corn futures, we would consider movement within the $5.5975-$5.8050 per bushel range to be unremarkable. Notable moves would extend to the $5.4850-$5.9400 per bushel range. Price action beyond that would be extreme. 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.
This week our median Fall Price estimate is $5.3825 per bushel, with a mode between $5.10 and $5.15 per bushel. Our median spring price estimate is $5.6850 per bushel, with a mode between $5.60 and $5.65 per bushel. Both distributions shifted higher with this week's rally. Declining short-term implied volatility and the passage of time narrowed the Spring Price distribution, which begins its discovery period next Tuesday. We now see about a 59% chance the Spring Price will fall between $5.55 and $5.80. The Fall Price distribution, on the other hand, widened with the increase in longer-term implied volatility.
We have done small amounts of hedging for our Quartzite Precision Marketing customers for the 2022 season. Mainly, we have recommended cash contracting portions of 2022 production as producers lock in their input costs. Additionally, we have made small purchases of put options as market liquidity allows. We made a few small trades for our Quartzite Precision Marketing customers this week, but no significant adjustments. We believe, even despite the uptrend in Dec22 corn futures, producers should protect their investment in expensive inputs with a disciplined and flexible risk management strategy. There is still time to consider your 2022 marketing plan. If you have any questions or want to learn more about what we do, please reach out. We are always happy to chat about the markets, and there is no obligation.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/fyn2nrPQ6n
— Quartzite Risk Management LLC (@QuartziteRMLLC) January 29, 2022
We think these scenarios are equally likely for next week. Where will Dec22 corn #futures settle?
Thanks for taking the time to read. We look forward to your questions and feedback. Thanks again. Have a great week.
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Weekly Price Levels and Corn Demand Index
As a reminder, the Quartzite Risk Management Corn Demand Index references the weekly change in April 2023 futures for Crude Oil, Live Cattle and Lean Hogs. We weigh the percentage change in those contracts and compute the index's percentage change. Crude Oil accounts for 50% of the index, and Live Cattle and Lean Hogs each make up 25%. To create the chart, we started the index at the Dec22 corn futures settlement on 11/12/21; then added or subtracted the index's weekly percentage change. We want to add a few warnings. First, there are only a handful of data points - not much to go on. Second, the index references relatively illiquid markets - making any strategy based on it challenging to execute. Third, we expect divergences to increase as we get into the growing season when the corn market will likely look more toward supply for its direction. In short, we would not attempt to trade on this information without much more data, nor would we recommend anyone else does.
