Weekly Corn Market Update 06/17/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 10.50-cents (~1.46%), settling at $7.3100/bushel. This week's price action took place in a 41.50-cent (~5.76%) range. All of this week's trading took place within the unremarkable range we published last week.
Our corn demand index (CDI) significantly underperformed Dec22 corn futures this week, falling 3.72%. Dec22 corn futures are trading at a nearly 50-cent premium to the CDI, and we believe serious production issues must materialize to maintain this premium. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and strength in the Dollar remain 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 remain above 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 $7.27, $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 $7.37, $7.57, and $7.66/bushel. Most daily and weekly momentum indicators finished in neutral territory this week. Though, the daily stochastics are pressing on overbought territory. Daily Bollinger Band Bandwidth narrowed this week. Carry spreads from Dec22 to Mar23, May23, and Jul23 finished unchanged to slightly weaker.
Our at-the-money model volatilities for the 2022 crop finished the week higher, with the front of the curve leading the way. 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 currently prefer the short-dated September expiration. 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 $6.9900-$7.7200 per bushel range unremarkable. Notable moves extend to the $6.6000-$8.2875 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 $6.9125 per bushel this week, with a mode between $6.55 and $6.60. Our Fall Price distribution shifted higher with the rally and widened with increased implied volatility.
This week, we only made one trade in the new crop corn market for our Quartzite Precision Marketing customers. We used strength overnight Thursday into Friday to roll some out-of-the-money short-dated August puts to short-dated September. 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/FgUQdky9JP
— Quartzite Risk Management LLC (@QuartziteRMLLC) June 17, 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.
