Weekly Corn Market Update 07/02/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 60.50-cents (~11.65%), settling at $5.7975/bushel. This week's price action took place in a 93.75-cent (~18.05%) range. The week's high was 2.75-cents below the extreme upper level we published last week.
Our corn demand index (CDI) rose ~1.61% this week, underperforming Dec21 corn futures for the first time in several weeks. Dec21 corn futures are back above the CDI after settling below for the first time since April (as we noted last week). See the chart below. Concerns over COVID-19 in the U.S. are mostly gone. Chatter about the "delta variant" continues to build. However, it appears the delta variant could be less deadly, though more contagious than the original strain. 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. We believe these factors will continue to provide potential sources of volatility for the foreseeable future. On Wednesday, the USDA released its annual Acreage and quarterly Grain Stocks reports with both slightly lower than consensus estimates.
The uptrend that started from the August 2020 lows remains intact. A glance at the chart continues to show a possible top forming or a bullish flag/pennant forming, depending on one's bias. Daily and weekly momentum indicators show mostly neutral readings. The carry spreads from Dec21 to Mar22, May22, and Jul22 compressed this week.
Implied volatilities for the 2021 crop rose this week. Reasonable values for long-term hedgers are 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 $5.4475-$6.2625 per bushel range to be unremarkable. Notable moves would extend to the $5.1450-$6.7750 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 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 somewhat active in the corn complex for our Quartzite Precision Marketing customers this week. On Tuesday, we saw an opportunity to roll nearer-term options into the newly-listed October expiration. At the time, we felt the volatility swaps to October from both short-dated August and September were too cheap. As of this writing, the situation seems to have corrected itself, and we no longer have a strong bias. On Wednesday, we used the post-USDA rally to sell some outright futures and roll up some put options. We also used Wednesday's compression in carry spreads to buy longer-term futures and sell shorter-term futures - shortening the overall duration of our hedges.
Have an excellent Independence Day!
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/ToMbbIyOcI
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 2, 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.
