Weekly Corn Market Update 07/16/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 35.00-cents (~6.77%), settling at $5.5200/bushel. This week's price action took place in a 51.25-cent (~9.91%) range. The weekly high was 8.00-cents above the upper-notable level we published last week, and the weekly settlement was 5.50-cents below that level.
Our corn demand index (CDI) rose 0.31% this week, underperforming Dec21 corn futures. However, Dec21 corn futures remain below the CDI for the second straight week - an occurrence we have not seen since April. See the chart below. Concerns over COVID-19 in the U.S. are building as chatter about the delta variant continues. This week L.A. County announced it is reinstating a mask mandate following a surge in cases. 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 released its monthly World Agricultural Supply and Demand Estimates (WASDE).
The uptrend that started from the August 2020 lows remains intact but still 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 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 fell again this week. Reasonable values for long-term hedgers are still challenging to find at these levels, but options are becoming more affordable. 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 $5.2375-$5.8850 per bushel range to be unremarkable. Notable moves would extend to the $4.9050-$6.5050 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 narrowed 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 somewhat active in the corn complex for our Quartzite Precision Marketing customers this week. This Wednesday, we reversed the trade we made last Wednesday. We sold the short-dated August straddle we purchased last week and bought back the December puts we had sold to fund that purchase. We also used some of the profits from that trade to buy some near-the-money puts in short-dated August. Additionally, we made several trades to consolidate our positions and adjust for more optimistic yield expectations among several of our clients.
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/pCwR5kHB3D
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 16, 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.
