Weekly Corn Market Update 03/26/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished lower for the third straight week, falling by 5.00-cents (~1.06%) and settling at $4.6650/bushel. We have not seen three consecutive weekly declines since October 2020. This week's price action took place in a 9.25-cent (~1.96%) range. All of this week's trading took place well-within the unremarkable band we published last week.
This week, our corn demand index rose ~0.59%, outperforming Dec21 corn futures and continuing to leave some room for the two to converge. See the chart below. Concerns over COVID-19 are mostly gone as vaccines become more widely distributed. Still, some potential problems remain with the possibility of new strains and other parts of the world considering renewed shutdowns. 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. Fundamental traders should expect the USDA's release of its Quarterly Grain Stocks and Annual Prospective Plantings reports next Wednesday to impact markets.
The uptrend that started from the August 2020 lows remains intact this week. However, Dec21 corn futures failed to trade higher than the previous week's high for the second straight week. Daily momentum indicators are split, with some in neutral territory and some indicating oversold conditions. Most weekly momentum indicators continue to show overbought conditions or slightly below, and several continue to display bearish divergences from price action. Carry spreads from Dec21 to Mar22, May22, and Jul22 all widened this week. The weekly chart gap from several weeks ago remains below the market at $4.60/bushel. Also of note is a significant technical range just below the market from $4.6225/bushel to $4.6650/bushel, as well as the 50-day moving average at roughly $4.6225/bushel. The looming convergence of these levels with the trendline connecting the 10/29/20 and 1/25/21 lows is a critical decision point for the market. Given the USDA releases next week, it seems reasonable that the market has retreated to these levels to await more information.
Implied volatilities for the 2021 crop were higher across the board this week. Reasonable values for long-term hedgers remain challenging to find - though we think the Mar22 option expiration continues to provide the most value for long-term hedgers. 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. Readers should note that proper execution and management are essential for these strategies to be effective.
Looking ahead to next week's holiday-shortened trading in Dec21 corn futures, we would consider movement within the $4.4975-$4.8425 per bushel range to be unremarkable. Notable moves would extend to the $4.2650-$5.1075 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.
Our Crop Insurance Fall Price distribution shifted lower this week due to the selloff and widened from increased implied volatility. See below for distribution and cumulative probability charts for fall crop insurance prices and a chart highlighting the distribution's changes. We think the chart highlighting the difference in the distribution from this week to last is particularly interesting this week.
Much of our trading for our Quartzite Precision Marketing customers was in the beans again this week. We used this week's swings in the beans to make some good futures trades against the expiring short-dated April options we entered last week. We were also able to use order flow in Jul22 corn options to leg into some favorable vertical put spreads.
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 & #oatt here is this week's poll. It will be a big (USDA), but short, week. Cast your vote, then read our Weekly Corn Market Update:https://t.co/mjuBFGfypu
— Quartzite Risk Management LLC (@QuartziteRMLLC) March 27, 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.
