Weekly Corn Market Update 03/25/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 23.50-cents (~3.64%), settling at $6.6900/bushel. Dec22 corn futures established another new contract high of $6.8050/bushel Wednesday. This week's price action took place in a 35.00-cent (~5.42%) range. The week's high was 8.00-cents into the notable upper range we published last week, while the settlement was 3.50-cents below the notable upper range.
Our corn demand index (CDI) rose 3.39% this week, slightly underperforming Dec22 corn futures. The CDI remains below Dec22 corn futures (see the chart below). Russia's war with Ukraine continued dominating headlines this week, and 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. We might get a window into that impact when the USDA releases its Quarterly Grains Stocks and Prospective Plantings numbers next Thursday.
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 now beyond 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 $6.30, $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 and weekly momentum indicators are either near or in overbought territory, and some divergences remain on both timeframes. Bollinger Bands expanded slightly. Carry spreads from Dec22 to Mar23 and May23 were up a quarter-cent, while the spread to Jul23 was unchanged.
Our at-the-money model volatilities for the 2022 crop finished mixed this week, with the front of the curve lower and the back higher. 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 6.4325-$7.0000 per bushel range unremarkable. Notable moves extend to the $6.1375-$7.3975 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 $6.1325 per bushel this week, with a mode between $5.80 and $5.85. This week, the Fall Price distribution shifted higher with the rally and widened considerably from increased implied volatility.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/oTM3le1MjB…
— Quartzite Risk Management LLC (@QuartziteRMLLC) March 25, 2022
We think these scenarios are equally likely for next week. Where will Dec22 corn #futures settle?
This week, we were somewhat active for our Quartzite Precision Marketing customers in the new crop corn market. We used Tuesday's strength to roll some formerly at-the-money shorted-dated June puts up to near-the-money short-dated May puts for a small premium outlay. Our thought is that short-dated May deserves more respect (at least through next Thursday) given next week's USDA release. On Friday, we used temporary weakness in the futures price and implied volatility to make a small buy of extremely-out-of-the money calls in Dec22 to cover some tail risk if the Fall price exceeds insurance guarantees. This purchase is not our favorite trade, but we feel it is prudent given the uncertainty in the marketplace. We also made a small trade in some sub-penny expiring short-dated April calls on Friday, but they did not pan out. 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.
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.
