Weekly Corn Market Update 03/12/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 2.75-cents (~0.57%), settling at $4.7875/bushel. This week's price action took place in a 10.50-cent (~2.18%) range, the narrowest since December. All of this week's trading took place well-within the unremarkable band we published last week.
Our corn demand index rose ~0.46% this week, outperforming Dec21 corn futures again and continuing to leave room for corn to catch up. See the chart below. Concerns over COVID-19 continue to fade as vaccines become more widely available. However, uncertain executive branch policy and rising long-term interest rates (and their impact on the Dollar) remain significant concerns. 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. On Tuesday, the USDA released its monthly WASDE report for February.
The uptrend that started from the August 2020 lows continued with another new contract high this week. Various daily and weekly momentum indicators continue to show overbought conditions, and several display bearish divergences from price action. Carry spreads for the 2021 crop year widened this week. The weekly gap from two weeks ago remains below the market at $4.60/bushel.
Implied volatilities were generally lower this week, with the short-dated May and July expirations bucking the trend. 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 charts below. One chart 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. The forward volatility chart shows why we continue to think Mar22 options are currently a better value for long-term hedgers than Dec21 options. We also note that this week the short-dated June expiration appears to be a good value for those inclined to shorter-duration hedges. However, readers should note that proper execution and management are essential for these strategies to be effective.
Looking ahead to next week's trading in Dec21 corn futures, we would consider movement within the $4.6475-$4.9400 per bushel range to be unremarkable. Notable moves would extend to the $4.4050-$5.2425 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.
Due to the selloff, the distribution for the Fall Price shifted lower this week. It also narrowed from decreases in implied volatility. See below for distribution and cumulative probability charts for Fall crop insurance prices and a chart highlighting the distribution's changes.
Given the narrow range this week, we only made some slight adjustments for our Quartzite Precision Marketing customers early in the week. We continue to look to concentrate our long-term volatility ownership in the Mar22 expiration.
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.
#AgTwitter and #oatt here is this week's #corn #market poll. Cast your vote, then click over to read our Weekly Corn Market Update:https://t.co/gcpmI3xw0A
— Quartzite Risk Management LLC (@QuartziteRMLLC) March 12, 2021
We think these scenarios are equally likely next week, what do you think?
Will Dec21 corn #futures settle:
Weekly Price Levels and Corn Demand Index
As a reminder, the Quartzite Risk Management Corn Demand 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. 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.
