Weekly Corn Market Update 04/01/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 18.00-cents (~3.86%), settling at $4.8450/bushel. This week's price action took place in an astounding 43.50-cent (~9.32%) range. The week's low was a 0.25-cents into the lower-notable range we published last week. The week's high was 8.75-cents into the upper-notable range we published last week, and the weekly settlement was 0.25-cents into the upper-notable range.
This week, our corn demand index rose ~1.12%, underperforming Dec21 corn futures but continuing to leave room for the two to converge. See the chart below. Concerns over COVID-19 continue to dissipate 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. The USDA's release of its Quarterly Grain Stocks and Annual Prospective Plantings reports on Wednesday drove Dec21 corn futures to fresh intraday highs on Thursday after a Wednesday's limit-up settlement. Next Friday, the USDA releases its monthly WASDE report for April. We expect less price action surrounding the WASDE than we saw from Wednesday's Plantings and Stocks reports.
The uptrend that started from the August 2020 lows remains intact this week, with Dec21 trading at fresh intraday highs on Thursday as well as a new high weekly settlement. Daily momentum indicators are generally in neutral territory. Weekly momentum indicators continue to show overbought conditions and bearish divergences from price action. Carry spreads from Dec21 to Mar22, May22, and Jul22 contracted this week. Dec21 corn futures filled the weekly chart gap from several weeks ago, trading well below $4.60/bushel pre-report on Tuesday and Wednesday. We see significant technical levels below the market around $4.64/bushel, $4.42/bushel, and $4.24/bushel.
Implied volatilities for the 2021 crop finished mixed this week. Near-term expirations finished the week lower, while the back of the curve strengthened. Reasonable values for long-term hedgers remain challenging to find - though we continue to think the Mar22 option expiration provides the best 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 trading in Dec21 corn futures, we would consider movement within the $4.6925-$5.0325 per bushel range to be unremarkable. Notable moves would extend to the $4.5450-$5.2650 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 higher 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 made several trades in the corn for our Quartzite Precision Marketing customers this week. Early in the week, as short-dated May volatility rose, we worked to roll some of our short-dated May options into later expirations. We were fortunate to make some good futures purchases near our lower-notable level against our options positions on Tuesday. On Thursday, we rolled some deferred Jul22 futures sales back to Dec21 to capture some of the compression in carry-spreads. Additionally, we reloaded on some short-dated May puts as option sellers appeared early in the day Thursday.
Thanks for taking the time to read, and have a happy Easter. 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. Cast your vote, then read our Weekly Corn Market Update:https://t.co/ejlJwmIYkG
— Quartzite Risk Management LLC (@QuartziteRMLLC) April 2, 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.
