Weekly Corn Market Update 06/10/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 30.50-cents (~4.42%), settling at $7.2050/bushel. This week's price action took place in a true range of 35.50-cents (~5.14%). This week's high was 10.50-cents above the notable range we published last week, and the settlement was 5.50-cents above that range.
Our corn demand index (CDI) underperformed Dec22 corn futures this week, rising only 1.72%. Dec22 corn futures are again trading at a slight premium to the CDI. Russia's war with Ukraine took a back seat to inflation concerns and the USDA's monthly WASDE report on Friday. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the rising Dollar remain significant concerns.
Dec22 corn futures remain in a long-term uptrend supported by a trendline connecting the lows of 03/31/21 and 09/10/21. Dec22 corn futures bounced from near the upper end of a channel formed using the 05/07/21 high as a boundary parallel to that trendline. We see support below the market near $7.14, $7.04, $6.88, $6.58, and $6.30/bushel. Significant long-term support is between $5.26 and $5.35 per bushel and would require a substantial break in the longer-term trend to test. Above the market, we see resistance around $7.27, $7.57, and $7.66/bushel. Most daily and weekly momentum indicators finished in neutral territory this week. Daily Bollinger Band Bandwidth finished little changed this week. Carry spreads from Dec22 to Mar23, May23, and Jul23 softened a touch following last week's strength.
Our at-the-money model volatilities for the 2022 crop finished higher this week. Given the high implied volatilities in the options market, we believe opportunistic spreading and careful position management are crucial to managing production uncertainty and volatility risk. Given the volatility term structure, we like the Dec22 expiration best. 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 Dec22 corn futures, we consider trade in the $6.9275-$7.5275 per bushel range unremarkable. Notable moves extend to the $6.5800-$7.9750 per bushel range. Price action beyond that would be extreme. 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 median Fall Price estimate is $6.8225 per bushel this week, with a mode between $6.50 and $6.55. This week, the Fall Price distribution shifted higher and widened with increased implied volatility.
This week, we made several trades in the new crop corn market for our Quartzite Precision Marketing customers. We rolled some out-of-the-money short-dated July puts up nearer to the money during the overnight session on Sunday night. Monday, we moved some near-the-money puts from short-dated August to short-dated September. Tuesday, we made an outright purchase of near-the-money puts in December. On Thursday, we collected a small premium to roll some out-of-the-money short-dated July puts up to near the money on a ratio. On Tuesday, we made another small Dec22 futures sale to continue onboarding a new customer. We still believe producers should protect their investment in expensive inputs with a disciplined and flexible risk management strategy like the one at the heart of Quartzite Precision Marketing. It may be the right time to consider your 2022 marketing plan. If you have any questions or want to learn more about what we do, we are always happy to chat about the markets, and there is no obligation.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/NpEks1xBT8
— Quartzite Risk Management LLC (@QuartziteRMLLC) June 10, 2022
We think these scenarios are equally likely for next week. Where do you think Dec22 corn #futures will settle next week?
Thanks for taking the time to read. We look forward to your questions and feedback. Thanks again. Have a great week.
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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 2023 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 Dec22 corn futures settlement on 11/12/21; 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.
