Weekly Corn Market Update 04/21/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week lower by 12.00 cents (~2.14%), settling at $5.4800/bushel. This week's price action occurred in a 24.75-cent (~4.42%) range. On Wednesday, Dec23 corn futures came within a quarter-cent of the notable up level we published last week. On Friday, Dec23 corn futures traded through our notable down level by 2.25 cents, ultimately settling three-quarters of a cent below it.
Our corn demand index (CDI) outperformed Dec23 corn futures again this week - falling only 1.57%. The ratio of Nov23 soybean futures divided by Dec23 corn futures rose from 2.32 to 2.35. 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.
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. Dec23 futures threatened this level late on Friday, posting a low of $5.4650/bushel. 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 and weekly momentum indicators settled in neutral to oversold territory this week. Daily Bollinger Band Bandwidth widened this week. Carry spreads from Dec23 to Mar24, May24, and Jul24 widened again this week.
Our at-the-money model volatilities for the 2023 crop finished the week mixed. 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 $5.3825-$5.5750 per bushel range unremarkable. Notable moves extend to the $5.2250-$5.7325 per bushel range. Price action beyond that would be extreme. Be sure to visit our Twitter page to vote in our weekly poll. While you are there, please give us a follow.
For the fall crop insurance price, we see a median of $5.3575/bushel with a mode between $5.15 and $5.20/bushel. 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 made three trades. First, we rolled some out-of-the-money short-dated June puts up nearer to the money. At roughly the same time, we made an additional outright purchase of the same near-the-money short-dated June put to replace some out-of-the-money short-dated May puts that looked likely to expire out of the money. On Friday, we rolled the now in-the-money short-dated June puts from Wednesday down nearer to the money on a ratio, picking up a unit in the process. Friday's selloff broke through the short-dated May puts we had all but written off, and we accumulated Dec23 futures throughout the day to offset them. Additionally, we made a small purchase of some sub-penny short-dated May calls. Though these calls expired out of the money, they allowed us to be patient in making our final futures purchase against the expiring in-the-money short-dated May puts. Overall, we were extremely pleased with this week's trades.
If you think Quartzite Precision Marketing might be a good fit for your operation, reach out to learn more and discuss your options.
Thanks for taking the time to read. We look forward to your questions and feedback. Thanks again.
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#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update: https://t.co/gqZN8iY6sp
— Quartzite Risk Management LLC (@QuartziteRMLLC) April 22, 2023
We think these scenarios have roughly equal probability next week. Where do you think #cbot Dec23 corn #futures will settle next week?
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.
