Weekly Corn Market Update 03/24/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week lower by 1.00 cent (~0.18%), settling at $5.6025/bushel. This week's price action occurred in a 16.75-cent (~2.98%) range. This week's low of $5.4750/bushel was 1.75 cents below the lower notable band we published last week.
Our corn demand index (CDI) outperformed Dec23 corn futures this week - rising 0.87% after last week's rout. The ratio of Nov23 soybean futures divided by Dec23 corn futures fell from 2.34 to 2.27. Potential instability in the US financial system, the war in Ukraine, executive branch policy, increasing tensions with China, Federal Reserve interest rate policy, and the Dollar remain concerns. The USDA releases its Quarterly Grain Stocks and Prospective Plantings reports next Friday at 11:00 am central time.
Depending on one's perspective, Dec23 corn futures remain in either a long-term uptrend originating from the spring lows of 2020 or a medium-term downtrend beginning from the spring 2022 highs. In our opinion, Dec23 futures must continue to hold the area around $5.46/bushel for all but the most-generous technicians to argue that the long-term uptrend remains intact. We see technical levels below the market at around $5.46, $5.14, $4.98, $4.83, $4.63, and $4.20/bushel. We see technical levels above the market at around $5.63, $5.84, $6.03, $6.14, $6.31, $6.55, and $6.78/bushel. Daily momentum indicators settled in neutral territory this week - while weekly momentum indicators remained in neutral to oversold territory. The weekly stochastics continue to display a notable divergence with recent price action. Daily Bollinger Band Bandwidth narrowed again this week. Carry spreads from Dec23 to Mar24, May24, and Jul24 finished little-changed this week.
Our at-the-money model volatilities for the 2023 crop finished higher this week. Option volatilities remain cheaper than a year ago. Our primary focus is moving our established options position around to capture market volatility to help offset time decay. 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 Dec23 corn futures, we consider trade in the $5.4225-$5.7625 per bushel range unremarkable. Notable moves extend to the $5.1175-$6.0225 per bushel range. Price action beyond that would be extreme. Be sure to visit our Twitter page to vote in the poll we typically hold there each week. While you are there, please give us a follow.
For the fall crop insurance price, we see a median of $5.4475/bushel with a mode between $5.15 and $5.20/bushel. This week our fall price distribution widened with increased implied volatility. See the crop insurance charts below.
This week, we made several trades for our Quartzite Precision Marketing customers in the 2023 corn crop. On Wednesday, we collected a small premium to roll in-the-money short-dated May puts down to near-the-money short-dated June puts. On Friday, we traded a put butterfly in short-dated May to capitalize on increased implied volatility. The butterfly diversified our clients' remaining short-dated May positions without significantly impacting their overall risk profile. We usually prefer to avoid trading butterflies, but reducing implied volatility exposure warranted the multi-leg trade in this case. We also made several trades to onboard a new client into the Quartzite Precision Marketing program.
There is still a little time to join our 2023 client roster for our Quartzite Precision Marketing program. If you want to learn more about working with us for the 2023 growing season, reach out.
Thanks for taking the time to read. We look forward to your questions and feedback. Thanks again.
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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 2024 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 Dec23 corn futures settlement on 11/04/22; 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.
