Weekly Corn Market Update 04/30/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 13.00-cents (~2.36%), settling at $5.6375/bushel. This week's price action took place in a 55.75-cent (~10.12%)range. The week's high was 18.00-cents above the upper-notable level we published last week. Otherwise, trading remained within the unremarkable band. However, we could hardly call the week unremarkable.
This week, our corn demand index (CDI) rose ~1.10%, underperforming Dec21 corn futures again and further signaling that the new crop corn market may be overheating relative to demand. See the chart below. Concerns over COVID-19 in the U.S. are mostly gone. Still, as the recent outbreak in India demonstrates, the potential for problems elsewhere in the world remains. 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.
The uptrend that started from the August 2020 lows remains intact this week, with Dec21 posting a fresh contract high for the fifth straight week. Various weekly momentum indicators continue to display extremely overbought conditions. Daily momentum indicators generally show less extreme levels thanks to price action on Tuesday and Wednesday. Carry spreads from Dec21 to Mar22, May22, and Jul22 narrowed again this week. Tuesday and Wednesday brought the sharp reversal we mentioned last week. Whether or not Tuesday's high print of $5.9300/bushel will become a long-term top remains to be seen. The past few weeks have felt like a blowoff top with extreme moves in the futures and implied volatility and skew in the options market. That said, blowoff tops do not necessarily mean a new downtrend has started. So, we plan to manage risk well and expect continued wide ranges as the market figures out its next step.
Implied volatilities for the 2021 crop finished mixed on the week, with the short-dated June expiration displaying the most strength. Reasonable values for long-term hedgers are extremely challenging to find at these levels. May22 volatility remains soft relative to other expirations and is still our preferred expiration - see the forward volatility chart below for an explanation. 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 $5.3575-$5.9500 per bushel range to be unremarkable. Notable moves would extend to the $5.0050-$6.3950 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. See below for distribution and cumulative probability charts for fall crop insurance prices and a chart highlighting the distribution's changes.
We were very active in the corn complex for our Quartzite Precision Marketing customers this week. We made a fair number of trades to adjust the strikes and expirations of our options. Additionally, we acquired a good-sized position in short-dated June options, and we helped offset the premium cost of those options with some fortunate gamma scalping in the futures. We were relatively active in the futures spread market, too, taking several opportunities to adjust the duration of our sales as carry spreads expanded and contracted throughout the week. It is busy weeks like this one where our per-acre management fees really shine. Because we do not charge a per-contract commission, our clients pay only small amounts (less than $6.00 per round turn including trading, CME, and NFA fees) when we trade on their behalf. That low per-trade cost means we can be nimble without having a large amount of drag generated each time we trade. Overall, we remain somewhat long the market, though considerably less than over the past few weeks. This length is still more out of necessity than desire but 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/HwfaWI6Kdm
— Quartzite Risk Management LLC (@QuartziteRMLLC) May 1, 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.
