Weekly Corn Market Update 03/19/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 7.25-cents (~1.51%), settling at $4.7150/bushel. This week's price action took place in a 13.75-cent (~2.87%) range. All of this week's trading took place within the unremarkable band we published last week, but the week's low was within a half-cent of the notable downside band.
This week, our corn demand index fell ~2.74%, underperforming Dec21 corn futures for the first time this month. See the chart below. Concerns over COVID-19 are mostly gone as vaccines become more widely distributed, but some potential problems remain with the possibility for new strains. Uncertain executive branch policy and rising long-term interest rates (and their impact on the Dollar) remain significant concerns. Both of these concerns increased this week, with heated discussions between the U.S. and China and rapidly rising long-term interest rates. We believe these factors will continue to provide potential sources of volatility for the foreseeable future.
The uptrend that started from the August 2020 lows remains intact this week. However, this is the first week in the last eight weeks where Dec21 corn futures failed to trade higher than the previous week's high. Various weekly momentum indicators continue to show overbought conditions and several display bearish divergences from price action. However, most daily momentum indicators have settled back into neutral territory. Carry spreads to May22 and Jul22 widened this week, while the spread from Dec22 to Mar22 was unchanged. The weekly gap from three weeks ago remains below the market at $4.60/bushel.
Implied volatilities for the 2021 crop were lower across the board this week. 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 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. Despite this volatility spread tightening this week, we continue to believe Mar22 options are a better value than Dec22 options. 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 $4.5775-$4.8625 per bushel range to be unremarkable. Notable moves would extend to the $4.3850-$5.0950 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.
Like last week, the Fall Price distribution shifted lower this week due to the selloff and 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.
Most of our trading this week for our Quartzite Precision Marketing customers was in the beans, where some opportunities appeared in the short-dated April expiration. On the corn side, we added a small number of Jul22 options to the portfolio.
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/SPFs9aJjga
— Quartzite Risk Management LLC (@QuartziteRMLLC) March 19, 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.
