Weekly Corn Market Update 05/12/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week lower by 26.00 cents (~4.86%), settling at $5.0875/bushel - posting their biggest weekly decline of the year on both a price and percentage basis. This week's price action occurred in a 33.00-cent (~6.17%) range - their widest of the year on both a price and percentage basis. The week's low of $5.04/bushel was 2.25 cents below the extreme level we published last week, and the settlement was 2.50 cents above that level.
Our corn demand index (CDI) outperformed Dec23 corn futures this week - falling only 0.80%. The ratio of Nov23 soybean futures divided by Dec23 corn futures rose to 2.41 from 2.39. Potential instability in the US financial system, ongoing debt-ceiling negotiations, the war in Ukraine, executive branch policy, increasing tensions with China, Federal Reserve interest rate policy, and the Dollar remain concerns. The USDA released its monthly WASDE report for May on Friday.
Dec23 corn futures remain in a long-term downtrend originating from the spring 2022 highs. We see technical levels below the market at around $4.98, $4.83, $4.63, and $4.20/bushel. We see technical levels above the market at around $5.14, $5.25, $5.46, $5.63, $5.71, $5.84, $6.03, $6.14, $6.31, $6.55, and $6.78/bushel. Most daily and weekly momentum indicators finished the week in oversold territory. Carry spreads from Dec23 to Mar24, May24, and Jul24 widened 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 trading around our established options position 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 $4.9450-$5.2175 per bushel range unremarkable. Notable moves extend to the $4.7525-$5.3850 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 $4.9850/bushel with a mode between $4.80 and $4.85/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's weakness, we made a small purchase of Dec23 futures for a few of our customers who have large percentages of their crops sold with cash contracts and have ample crop insurance coverage. On Thursday, we did a down-and-in diagonal put spread - collecting a sizeable premium to roll in-the-money short-dated August puts down to near-the-money short-dated July puts. Additionally, we outlaid a small premium to purchase a few out-of-the-money short-dated July calls to help manage our clients' overall delta exposure. We also made a small sale in the Dec23/May24 carry spread for an individual customer with sufficient on-farm storage capacity to justify the trade.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update: https://t.co/Z73ZWm6h92
— Quartzite Risk Management LLC (@QuartziteRMLLC) May 12, 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.
