Weekly Corn Market Update 02/03/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week higher by 8.75 cents (~1.49%), settling at $5.9600/bushel. This week's price action occurred in an 11.25-cent (~1.92%) range. This week's high was a half-cent above the upper notable band we published last week, while the settlement was 1.75 cents below that level.
Our corn demand index (CDI) underperformed Dec23 corn futures this week - falling 2.72%. Dec23 corn futures nearly eliminated their discount to the CDI this week. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the Dollar remain concerns.
Depending on one's perspective, Dec23 corn futures remain in either a long-term uptrend originating from the spring lows of 2020 or a medium-term downtrend beginning from the spring 2022 highs. However, a comparatively small down move would break that long-term uptrend convincingly. We see technical levels below the market at around $5.84, $5.63, $5.46, $5.14, $4.98, $4.83, $4.63, and $4.20/bushel. We see technical levels above the market at around $6.03, $6.14, $6.31, $6.55, and $6.78/bushel. Daily and weekly momentum indicators mostly settled in neutral territory this week. However, the weekly stochastic indicator continues to flirt with oversold territory. Daily Bollinger Band Bandwidth narrowed notably this week. Carry spreads from Dec23 to Mar24, May24, and Jul24 finished mixed this week. To say the Dec23 technicals remain murky is an understatement.
Our at-the-money model volatilities for the 2023 crop finished lower this week. Option volatilities remain cheaper than a year ago, especially in near-term, short-dated new crop options. We are opportunistically looking to add these to our client portfolios. 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.
For next week's trading in Dec23 corn futures, we consider trade in the $5.8575-$6.0600 per bushel range unremarkable. Notable moves extend to the $5.6725-$6.2450 per bushel range. Price action beyond that would be extreme. Be sure to visit our Twitter page to vote in the poll we typically hold there each week. While you are there, please give us a follow.
The spring crop insurance price began its discovery period this week. With 15.79% of observations accumulated, the average is currently $5.9575/bushel. For the fall crop insurance price, we see a median of $5.7450/bushel with a mode between $5.45 and $5.50/bushel. The fall distribution shifted higher this week with the rise in Dec23 futures and narrowed with decreased implied volatility. See the crop insurance charts below.
We made a few trades for our Quartzite Precision Marketing customers this week. On Wednesday, we added some slightly in-the-money short-dated May23 puts. We collected a small premium on Thursday to swap the short-dated May23 calls we purchased last week for slightly out-of-the-money short-dated Apr23 puts. On Friday, we added to that position in short-dated Apr23 puts to adjust several clients' positions based on updated acreage totals.
We are finalizing the 2023 client roster for our Quartzite Precision Marketing program. We still have a few spots left, so if you're interested in working with us for the 2023 growing season, reach out.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/fRe37duWy9
— Quartzite Risk Management LLC (@QuartziteRMLLC) February 4, 2023
We think these scenarios have roughly equal probability next week. Where do you think #cbot Dec23 corn #futures will settle next week?
Thanks for taking the time to read. We look forward to your questions and feedback. Thanks again.
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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 2024 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 Dec23 corn futures settlement on 11/04/22; 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.
