Weekly Corn Market Update 01/29/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 15.00-cents (~3.49%), settling at $4.4525/bushel. This week's price action took place in a 28.00-cent (~6.51%) range. The weekly settlement was 1.50-cents below the notable-up band we published last week, and the week's high was 4.75-cents into that band.
Our corn demand index was down ~0.58% this week, underperforming Dec21 corn futures. This week, we are adding a chart of this index versus the weekly settlement in Dec21 corn futures. As a refresher, the index references the weekly change in April 2022 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 Dec21 corn futures settlement on 11/20/20; then added or subtracted the index's weekly percentage change. The graph paints a compelling picture. However, we want to add a few warnings. First, there are only eleven 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. Our concerns over COVID-19 and executive branch policy remain. We believe these factors will continue to provide potential sources of volatility for the foreseeable future. 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. It is too soon to tell if last week's reversal will be the undoing of that trend. Most daily momentum indicators are in neutral territory. However, some weekly momentum indicators remain at lofty levels. We still would not be surprised by 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. Implied volatility notched new highs across the curve this week, with the short-dated June expiration leading the gains. Reasonable values for hedgers are now difficult to find. Opportunistic spreading and careful position management are now virtual necessities to maintain the flexibility needed to manage production uncertainty and volatility risk. 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 $4.2850-$4.6400 per bushel range to be unremarkable. Notable moves would extend to the $4.1225-$4.8400 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. For the Spring Price, decreasing time outpaced increasing implied volatility resulting in a narrower distribution. In comparison, increased implied volatility levels widened the distribution for the Fall Price. See below for distribution and cumulative probability charts for both the Spring and Fall crop insurance prices and a chart highlighting the Fall Price distribution's change. This week is the final week we will be publishing Spring Price charts.
Lastly, we would like to take a few seconds to remind you that February starts next week. 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.
