Weekly Corn Market Update 02/19/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 11.25-cents (~2.51%), settling at $4.6000/bushel. This week's price action took place in a 19.50-cent (~4.35%) range. The week's high of $4.6550/bushel was 8.00-cents above the notable band we published last week, and the week's settlement was 1.50-cents above that level.
Our corn demand index was up ~0.77% this week, underperforming Dec21 corn futures. Though, corn's outperformance this week was not enough to offset the prior two weeks - leaving some more room for corn to catch up. See the chart below. 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. The USDA held its annual Agricultural Outlook Forum on Thursday and Friday which seemed to match market expectations.
The technical picture is murky this week. While Friday's high represented a new contract high, the market failed to close above the trendline connecting the highs of 1/13 and 2/9. The market could be in the process of forming a top, or it could be coiling for its next leg higher - time will tell. A variety of daily and weekly momentum indicators show a mix between neutral and overbought conditions. However, some momentum indicators have drifted back into overbought territory and display bearish divergences from price action. Carry spreads to March, May, and July of 2022 futures widened this week. We still would not be surprised by a pullback to the $4.10-$4.12/bushel range.
Near-term implied volatility for the 2021 crop year was slightly lower this week, while longer durations were a bit higher. Reasonable values for long-term hedgers remain challenging to find. Opportunistic spreading and careful position management are still 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 $4.5000-$4.6975 per bushel range to be unremarkable. Notable moves would extend to the $4.3250-$4.8525 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.
The Spring Price for crop insurance continued accumulating this week. With nearly three-quarters of the observations collected, the average is currently $4.5354/bushel. At this point, the Spring Price is likely to fix between $4.50/bushel and $4.60/bushel. The distribution for the Fall Price shifted higher due to the rally. It also broadened slightly from increases in long-term implied volatility. See below for distribution and cumulative probability charts for Fall crop insurance prices and a chart highlighting the distribution's changes.
We continued adding hedges for our Quartzite Precision Marketing customers this week. They continued making regular forward sales with their local elevators. We have continued looking for favorable option spreads to create a flexible portfolio without too much exposure to the still high implied volatility levels. We generally favor the simple over the complex but elevated implied volatilities this season make simplicity a challenge. If you are interested in learning more about how we plan to navigate this season's challenges, please give us a call.
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.
Cast your vote in our weekly #corn #market poll this week, then head over to read our Weekly Corn Market Update:https://t.co/TuhMnuIZpC
— Quartzite Risk Management LLC (@QuartziteRMLLC) February 20, 2021
We think the following scenarios are equally likely next week, what do you think?
Will Dec21 corn #futures settle:
