Weekly Corn Market Update 03/18/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week lower by 9.75-cents (~1.49%), settling at $6.4550/bushel. Dec22 corn futures established another new contract high of $6.5800/bushel Monday. This week's price action took place in a 29.50-cent (~4.50%) range. The week's low matched the lower unremarkable level we published last week.
Our corn demand index (CDI) fell 0.95% this week - slightly outperforming Dec22 corn futures. However, the CDI remained below Dec22 corn this week - with last week's crossover remaining a potential signal of a changing or pausing trend (see the chart below). Russia's war with Ukraine continued dominating headlines this week. We expect these headlines to continue driving volatility. COVID-19, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the Dollar remain significant concerns. Increased input costs for corn production continue to impact acreage decisions this year.
Dec22 corn futures remain in a long-term uptrend supported by a trendline connecting the lows of 03/31/21 and 09/10/21. However, they are still near the upper end of a channel formed using the 05/07/21 high as an upper boundary parallel to that trendline. We still would not be surprised by a pullback testing support below the market near $5.98, $5.80, or even $5.65/bushel. Significant long-term support is between $5.26 and $5.35 per bushel and would require a substantial break in trend to test. Most daily momentum indicators returned to neutral this week, while most weekly versions display overbought readings. Some divergences remain on both timeframes. For the first time in several weeks, daily Bollinger Bands contracted slightly. Carry spreads from Dec22 to Mar23, May23, and Jul23 closed the inversion gap this week, with Mar23 and May23 showing slight carries while Jul23 settled even with Dec22.
Our at-the-money model volatilities for the 2022 crop fell this week but remain high relative to recent years before the 2021 crop year. 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. Cautious execution remains essential in deferred expirations because of a lack of liquidity. 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 Dec22 corn futures, we consider trade in the $6.2300-$6.7250 per bushel range unremarkable. Notable moves extend to the $5.9775-$7.0625 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 $5.9350 per bushel this week, with a mode between $5.60 and $5.65 per bushel. This week, the Fall Price distribution shifted lower with the selloff and narrowed slightly from decreased implied volatility.
We were barely active for our Quartzite Precision Marketing customers in corn this week. Our only trade was a nice roundtrip in some near-the-money short-dated April puts on Wednesday on the rumor and later denial of an impending peace deal between Russia and Ukraine. We still believe that producers should protect their investment in expensive inputs with a disciplined and flexible risk management strategy like the one at the heart of Quartzite Precision Marketing. 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.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/y0bpSRwF8z…
— Quartzite Risk Management LLC (@QuartziteRMLLC) March 19, 2022
We think these scenarios are equally likely for next week. Where will Dec22 corn #futures settle?
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.
