Weekly Corn Market Update 05/19/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week lower by 9.00 cents (~1.77%), settling at $4.9975/bushel - their first sub-$5.00 weekly settlement since 2021. This week's price action occurred in a 26.75-cent (~5.26%) range. The week's low of $4.9275/bushel was 1.75 cents below the notable level we published last week, and the settlement was 5.25 cents above that level.
Our corn demand index (CDI) outperformed Dec23 corn futures again this week - rising 1.27%. The ratio of Nov23 soybean futures divided by Dec23 corn futures fell from 2.41 to 2.35. 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.
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 narrowed this week.
Our at-the-money model volatilities for the 2023 crop finished the week considerably higher. Option volatilities remain cheaper than a year ago. Our primary focus remains trading around our clients’ positions 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 $4.8175-$5.1850 per bushel range unremarkable. Notable moves extend to the $4.5850-$5.4375 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 $4.8775/bushel with a mode between $4.70 and $4.75/bushel. See the crop insurance charts below.
This week, we made three trades for our Quartzite Precision Marketing customers in the 2023 corn crop - all on Wednesday when the market first traded down to our notable level for the week. For all of our customers, we collected a nice premium to roll some in-the-money short-dated July puts down to a just out-of-the-money strike in the same expiration. We made two additional trades for those of our customers with ample crop insurance coverage and sufficient forward sales. First, we purchased a wide call butterfly, with a near-the-money bottom strike, in the December expiration. We also liquidated in-the-money short-dated June puts for those same customers, collecting a nice premium. For the customers with less crop insurance protection or fewer forward sales, we maintained our position in the short-dated June puts, intending to exercise them if they remain in the money at expiration.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/bjqBNeyJ6I
— Quartzite Risk Management LLC (@QuartziteRMLLC) May 20, 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.
