Weekly Corn Market Update 06/18/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 43.50-cents (~7.13%), settling at $5.6625/bushel. This week's price action took place in a 79.25-cent (~13.00%) true range from last week's settlement. The week's low was 8.50-cents below the extreme lower band we published last week. The weekly settlement was 10.50-cents below the lower notable level we published last week.
Our corn demand index (CDI) fell ~1.77% this week, outperforming Dec21 corn futures. See the chart below. Concerns over COVID-19 in the U.S. are mostly gone. However, chatter about the "delta variant" seems to be gaining traction. The potential for problems elsewhere in the world and from new strains remains. Uncertain executive branch policy, interest rates, and their impact on the Dollar remain significant concerns. This week, the Dollar showed impressive strength following Wednesday's Federal Reserve meeting and commentary by Fed president Jerome Powell. 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. A glance at the chart might show a double top forming or a bullish flag/pennant 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 neutral readings. The carry spreads from Dec21 to Mar22, May22, and Jul22 expanded this week.
Implied volatilities for the 2021 crop rose this week, with short-dated July leading the charge. 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 $5.3025-$6.1250 per bushel range to be unremarkable. Notable moves would extend to the $4.8700-$6.9425 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 lower this week due to the selloff. See below for distribution and cumulative probability charts for fall crop insurance prices and a chart highlighting the distribution's changes.
We were active in the corn complex for our Quartzite Precision Marketing customers this week. Our option positions flipped our overall long exposure to short as the market sold off into Thursday's low. We rebalanced to a more neutral position near the lower extreme level we published last week. We did this by combining closing put sales in short-dated July with diagonal put spreads from short-dated July to December. The rally on Friday brought us back to an overall long exposure. To manage this, we exchanged out-of-the-money strangles in short-dated July for the at-the-money straddles midday. Then, near the close, we purchased put spreads in short-dated July to roll out-of-the-money puts nearer to the money and made outright futures sales. We closed the week somewhat long the market overall, again more out of necessity than desire. However, our options positions continue to reduce this length quickly in a falling market.
We want to add that these seemingly well-timed trades are not the result of a crystal ball. Instead, they are a natural consequence of the disciplined, dynamic hedging strategy we use to manage the options portfolio at the heart of our Quartzite Precision Marketing strategy. If you want to learn more, please look through the articles on our Tools and Tactics page, and send us your questions.
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/4dEhSwi8OY
— Quartzite Risk Management LLC (@QuartziteRMLLC) June 18, 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.
