Weekly Corn Market Update 04/28/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week lower by 20.25 cents (~3.79%), settling at $5.2775/bushel. This week's price action occurred in a 29.50-cent (~5.38%) range. On Friday, Dec23 corn futures traded a penny below the extreme down level we published last week - putting in their first extreme print of the year.
Our corn demand index (CDI) outperformed Dec23 corn futures again this week - nudging 0.05% lower. The ratio of Nov23 soybean futures divided by Dec23 corn futures rose from 2.35 to 2.39. 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.
Dec23 futures failed to hold the area around $5.46/bushel this week - officially, at least in our opinion, putting to bed the notion that they remain in a long-term uptrend. Interestingly, Dec23 corn futures set their contract high almost precisely a year ago at $6.7825/bushel on April 29th, 2022. Perhaps odder still, they put in their contract low of $3.7450/bushel almost precisely three years ago on April 29th, 2020. The last week in April appears significant in the corn market. We see technical levels below the market at around $5.14, $4.98, $4.83, $4.63, and $4.20/bushel. We see technical levels above the market at around $5.46, $5.63, $5.71, $5.84, $6.03, $6.14, $6.31, $6.55, and $6.78/bushel. Daily and weekly momentum indicators settled in oversold territory this week. Daily Bollinger Band Bandwidth widened again this week. Carry spreads from Dec23 to Mar24, May24, and Jul24 also widened again this week.
Our at-the-money model volatilities for the 2023 crop finished the week higher. Option volatilities remain cheaper than a year ago. Our primary focus remains 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 $5.1375-$5.4025 per bushel range unremarkable. Notable moves extend to the $4.9025-$5.6150 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 $5.1675/bushel with a mode between $4.95 and $5.00/bushel. See the crop insurance charts below.
This week, we made several trades for our Quartzite Precision Marketing customers in the 2023 corn crop. Before we cover those, we need to amend last week's trade summary. While we mentioned we made three trades on Wednesday, 4/19, we accidentally left one of those three trades out of the text. That trade was a closing sale of a small out-of-the-money call calendar spread from short-dated September to December. Please accept our apologies for the omission - now, onto this week's trades.
On Monday, we made a small purchase of out-of-the-money short-dated August calls to manage our increasingly short-delta exposure and take advantage of what we see as favorable volatility and skew in the short-dated August expiration. On Tuesday, we purchased an out-of-the-money put calendar spread from short-dated July to short-dated August - primarily based on what we considered favorable forward volatility for August but also to facilitate rolling short-dated June puts to a longer duration. On Thursday, we made another small purchase of out-of-the-money calls in short-dated August, again to manage our increasingly short-delta exposure and take advantage of what we see as favorable volatility and skew in the short-dated August expiration. Later on Thursday, we collected a nice premium from selling a down-and-out put diagonal spread from short-dated June to short-dated July - closing some of our in-the-money short-dated June puts and buying back the short-dated July leg from Tuesday's put calendar. We made two trades near Friday's lows around our extreme down level for the week. First, we collected a good-sized premium from selling a vertical put spread in short-dated June. This trade closed more of our in-the-money short-dated June puts while opening a small position in out-of-the-money short-dated June puts. Shortly after that, we collected a small premium from selling a down-and-out diagonal that closed the balance of our in-the-money short-dated June puts and added to our near-the-money short-dated August put position.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update: https://t.co/fPWedixaBm
— Quartzite Risk Management LLC (@QuartziteRMLLC) April 28, 2023
We think these scenarios have roughly equal probability next week. Where do you think #cbot Dec23 corn #futures will settle next week?
If you think Quartzite Precision Marketing might be a good fit for your operation, reach out to learn more and discuss your options.
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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 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.
