Weekly Corn Market Update 05/28/21
Edited to correct errors on 06/04/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 1.00-cent (~0.18%), settling at $5.4550/bushel. This week's price action took place in a 57.50-cent (~10.52%) range. This week’s low was well into the notable lower band we published last week.
This week, our corn demand index (CDI) rose ~1.70%, outperforming Dec21 corn futures. See the chart below. Concerns over COVID-19 in the U.S. are mostly gone. Still, the potential for problems elsewhere in the world and from new strains remain. Uncertain executive branch policy, interest rates, and their impact on the Dollar remain significant concerns. Israeli/Palestinian tensions appear to have calmed this week. 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, though time will tell if it holds. Most weekly momentum indicators remained at neutral levels this week. In contrast, some daily momentum indicators dipped into oversold territory early in the week before recovering later in the week. The carry spread from Dec21 to Mar22, settled unchanged for the week while those to May22, and Jul22 finished higher.
Implied volatilities for the 2021 crop mostly rose this week; short-dated July was the only softer expiration. Reasonable values for long-term hedgers remain challenging to find at these levels. 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 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.
Looking ahead to next week's holiday-shortened trading in Dec21 corn futures, we would consider movement within the $5.2350-$5.6775 per bushel range to be unremarkable. Notable moves would extend to the $4.8100-$6.0775 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 finished little-changed this week. See below for distribution and cumulative probability charts for fall crop insurance prices and a chart highlighting the distribution's changes.
We were moderately active in the corn complex for our Quartzite Precision Marketing customers this week. Most of our trades this week were gamma-scalps to help offset the decay in our options. Some of these scalps were outright futures trades, and others involved rolling short-term options around. In addition to our gamma scalps this week, we used the volatile week as an opportunity to clean up some longer-duration options spreads. We also added another layer of deep-out-of-the-money calls to extend production guarantees above twice the Spring Crop Insurance Price, effectively.
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 - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/qab0LdueSc
— Quartzite Risk Management LLC (@QuartziteRMLLC) May 30, 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.
