Weekly Corn Market Update 04/16/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 15.75-cents (~3.17%), settling at $5.1225/bushel. This week's price action took place in a 25.75-cent (~5.19%) range. The week's high was 5.00-cents above the upper-notable range we published last week, and the weekly settlement was 0.25-cents above that level.
This week, our corn demand index (CDI) rose ~1.54%, underperforming Dec21 corn futures again and continuing to signal that the corn market may be overheating relative to demand. See the chart below. Concerns over COVID-19 in the U.S. 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 or enacting renewed shutdowns. Uncertain executive branch policy, 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. This week, we add Russian and Ukrainian tensions to our list of potential fundamental volatility catalysts.
The uptrend that started from the August 2020 lows remains intact this week, with Dec21 trading at fresh intraday highs on Thursday in addition to posting new daily and weekly high settlements. Various daily momentum indicators display overbought conditions. Weekly momentum indicators also continue to show overbought conditions and bearish divergences from price action. Carry spreads from Dec21 to Mar22, May22, and Jul22 narrowed this week. We continue to see significant technical levels below the market around$4.84/bushel, $4.64/bushel, $4.42/bushel, and $4.24/bushel.
Implied volatilities for the 2021 crop mainly finished higher this week. Short-dated May, which expires next week, was the lone exception. Reasonable values for long-term hedgers remain challenging to find. The forward volatility implied between Dec21 and Mar22 softened this week, making the Mar22 expiration a slightly better deal for long-term hedgers than last week. Mar22 remains our preferred option expiration. 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.
Looking ahead to next week's trading in Dec21 corn futures, we would consider movement within the $4.9750-$5.2800 per bushel range to be unremarkable. Notable moves would extend to the $4.8050-$5.4725 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 rally and widened due to 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 complex for our Quartzite Precision Marketing customers this week. Early in the week, we traded some calendar and ratio put spreads to lengthen our duration and reposition our options closer to the money. Today, we made various trades to decrease some of the long exposure we carried into the week. Overall, we remain somewhat long the market. This length continues to be more out of necessity than desire. Still, it dissipates quickly to the downside as our options kick in.
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 Another week, another new high. Cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/8hbNifXMmA
— Quartzite Risk Management LLC (@QuartziteRMLLC) April 16, 2021
We think these scenarios are equally likely for 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.
