Weekly Corn Market Update 06/11/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 18.25-cents (~3.09%), settling at $6.0975/bushel. This week's price action took place in a 36.75-cent (~6.21%) true range from last week's settlement. The week's high was a quarter-cent below the notable upper band we published last week.
This week, our corn demand index (CDI) rose ~1.75%, underperforming 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. We believe these factors will continue to provide potential sources of volatility for the foreseeable future. The USDA released its monthly WASDE report on Thursday.
The uptrend that started from the August 2020 lows remains intact. A glance at the chart might show a double top forming or a bullish flag forming, depending on one's bias. In either event, it is unlikely that the chart knows the rest of the summer's weather. Most daily and weekly momentum indicators show a mix of neutral to overbought readings. The carry spread from Dec21 to Mar22, May22, and Jul22 finished mixed for the week. The spread from Dec21 to Mar22 narrowed slightly while spreads from Dec21 to May22 and Jul22 widened.
Most implied volatilities for the 2021 crop rose this week, with short-dated July being the only decliner for the week. 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 trading in Dec21 corn futures, we would consider movement within the $5.7675-$6.4950 per bushel range to be unremarkable. Notable moves would extend to the $5.3900-$7.0575 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. The distribution also widened slightly due to increases in implied volatility. See below for distribution and cumulative probability charts for fall crop insurance prices and a chart highlighting the distribution's changes.
We were mildly active in the corn complex for our Quartzite Precision Marketing customers this week. Early in the week, we used higher long-term implied volatilities as an opportunity to roll longer-dated puts up on a ratio. We took advantage of a mid-week dip in short-term implied volatility to purchase some at-the-money straddles in short-dated July before Thursday's USDA release. In addition to those option trades, we used compressed carry spreads early in the week to shorten the overall duration of our hedges with futures spreads. Later in the week, we rolled them back out the spreads once again expanded. Overall, we continue to be long the market more out of necessity than desire.
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/ky3u0JRKX3
— Quartzite Risk Management LLC (@QuartziteRMLLC) June 13, 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.
