Weekly Corn Market Update 07/09/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 62.75-cents (~10.82%), settling at $5.1700/bushel. This week's price action took place in a 72.75-cent (~12.55%) true range from last week’s settlement. The week's low was 7.50-cents below the lower extreme level we published last week. The weekly settlement was 2.50-cents above the lower extreme level we published last week.
Our corn demand index (CDI) fell 0.84% this week, outperforming Dec21 corn futures. Dec21 corn futures are back below the CDI after settling above last week. See the chart below. Concerns over COVID-19 in the U.S. are beginning to return as chatter about the delta variant continues to build. Global markets took note of Japan's renewal of its state-of-emergency declaration in front of the Olympics. 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 Monday, the USDA will release its monthly World Agricultural Supply and Demand Estimates (WASDE).
The uptrend that started from the August 2020 lows remains intact but appears to be weakening. A glance at the chart continues to show a possible top forming or a bullish flag/pennant forming, depending on one's bias. Daily momentum indicators show a mix of oversold and neutral readings, while the weeklies show mostly neutral readings. The carry spreads from Dec21 to Mar22, May22, and Jul22 expanded this week.
Implied volatilities for the 2021 crop fell sharply 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 $4.8900-$5.5750 per bushel range to be unremarkable. Notable moves would extend to the $4.6225-$6.2275 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. The distribution also narrowed considerably due to decreases 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 not very active in the corn complex for our Quartzite Precision Marketing customers this week - preferring to let our position work. We made a closing sale of a small portion of our in-the-money December puts on Wednesday. We used a part of the funds those sales generated to purchase an equal number of the at-the-money straddles in short-dated August.
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/SBfRTbXNPP
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 11, 2021
We think these scenarios are equally likely for next week. What do you think?
Will Dec21 corn #futures settle?
Weekly Price Level 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.
