Weekly Corn Market Update 02/18/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 3.00-cents (~0.50%), settling at $5.9775/bushel. Dec22 corn futures established another new contract high of $5.9950/bushel on Friday. This week's price action took place in a 13.75-cent (~2.31%) range. All of this week's trading took place within the unremarkable range we published last week.
Our corn demand index (CDI) fell 0.11% this week, underperforming Dec22 corn futures for the second straight week. Tensions between Russia and Ukraine continued to take center stage throughout the week. Negotiations with Iran have shown promise this week, though they were overshadowed by the events in Ukraine. If those negotiations yield a deal and Iran's oil hits the global market, increased crude supplies could pressure global commodity markets. Additionally, COVID-19, executive branch policy, tensions with China, Federal Reserve interest rate policy, and 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. However, continued strength in Dec22 corn futures may offset the impact of higher input prices.
Dec22 corn futures remain in a long-term uptrend supported by a trendline connecting the lows of 03/31/21 and 09/10/21. Near-term support sits below the market at $5.65/bushel. Additionally, significant support rests below the market between $5.26 and $5.35 per bushel. Most daily and weekly momentum indicators now show overbought readings. Several momentum indicators on the weekly chart still show divergence with price action since the old contract-high on 11/24/21. Bollinger Bands expanded again this week. Carry spreads from Dec22 to Mar23, May23, and Jul23 widened this week.
Implied volatilities for the 2022 crop fell this week, and remain high relative to recent years before the 2021 crop year. We believe the Dec22 and later expirations offer the best value for long-term hedgers, but careful execution is essential. Given the high implied volatilities in the options market, we believe opportunistic spreading and careful position management are crucial to managing production uncertainty and volatility risk. 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 $5.8975-$6.0850 per bushel range to be unremarkable. Notable moves would extend to the $5.8175-$6.2175 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.
Our median Fall Price estimate is $5.6450 per bushel this week, with a mode between $5.30 and $5.35 per bushel. The Spring Price continued its discovery period, and with 73.68% of the observations in, the average so far is $5.8570/bushel. The Fall Price distribution shifted higher with the rally this week and narrowed with decreases in implied volatility.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/AOu0DlVKLd…
— Quartzite Risk Management LLC (@QuartziteRMLLC) February 19, 2022
We think these scenarios are equally likely for next week. Where will Dec22 corn #futures settle?
We have done some hedging for our Quartzite Precision Marketing customers for the 2022 season. We continue to recommend cash contracting portions of 2022 production as producers book inputs. This week, we made a few trades for our Quartzite Precision Marketing customers. On Wednesday and Thursday, we purchased a few small call options in short-dated April to extend the duration of our upside protection against geopolitical concerns. On Friday, we added near-the-money puts in short-dated April while selling some out-of-the-money puts against them to keep overall premium outlays reasonable. Despite the uptrend in Dec22 corn futures and geopolitical risk, we continue to believe that 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.
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.
