Weekly Corn Market Update 07/21/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week higher by 22.50 cents (~4.38%), settling at $5.3625/bushel - this week's high was 23.00 cents above the notable level we published last week, while the settlement was 4.50 cents below our notable level for the week.
Our corn demand index (CDI) underperformed Dec23 corn futures again this week - rising only 1.28%. The ratio of Nov23 soybean futures divided by Dec23 corn futures slipped from 2.67 to 2.61. Potential instability in the US financial system, the war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the Dollar remain concerns.
Dec23 corn futures remain below the long-term downtrend trendline extending from the highs of 04/27/22 and 10/14/22. We see technical levels below the market at around $5.25, $5.14, $4.98, $4.83, $4.63, and $4.20/bushel. We see technical levels above the market at around $5.48, $5.63, $5.71, $5.84, $6.03, $6.14, $6.31, $6.55, and $6.78/bushel. The $5.48/bushel level continues to be important. Daily and weekly momentum indicators finished the week without much agreement. Carry spreads from Dec23 to Mar24, May24, and Jul24 finished narrower this week.
Our at-the-money model volatilities for the 2023 crop finished the week higher. Our new crop model volatilities remain lower than comparable volatilities a year ago. Our primary focus remains trading around our clients' established positions to capture market volatility to help offset time decay. See the model volatility 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 Dec23 corn futures, we consider trade in the $5.1025-$5.6650 per bushel range unremarkable. Notable moves extend to the $4.7500-$6.2100 per bushel range. Price action beyond that would be extreme. A chart of these levels over time is available below. Be sure to visit our Twitter page to vote in our weekly poll. While you are there, please give us a follow.
For the fall crop insurance price, we see a median of $5.2975/bushel with a mode between $5.20 and $5.25/bushel. The expected distribution of fall crop insurance prices shifted higher with the rally and widened on increased implied volatility. See the crop insurance charts below.
We made several trades this week for our Quartzite Precision Marketing customers in the 2023 corn crop. On Tuesday, we opened a diagonal call calendar spread, purchasing an upside call in Oct23 and selling a further out-of-the-money call in short-dated Sep23. Additionally, we liquidated a put butterfly in short-dated Aug23 that resulted from a pair of earlier trades on 06/16/23 and 06/28/23 - collecting a nice premium in the process. In the overnight Tuesday to Wednesday, we made two closing trades in a short-dated Sep23 to Dec23 strangle swap we had accumulated from earlier trades on 06/07/23 and 06/30/23. The two trades closed about two-thirds of our position in the strangle swap for a nice winner. Late in the overnight session Wednesday morning, we spent some of the premium we collected from selling the short-dated Aug23 put butterfly and short-dated Sep23 to Dec23 strangle swaps to roll our out-of-the-money Oct23 puts up nearer to the money on a ratio. During Wednesday's day session, we purchased a wide downside put butterfly in Dec23 for a single customer to manage his specific risk profile. Near the closing bell on Wednesday, we liquidated the short-dated Aug23 calls we opened on 06/30/23 for a nice win. Overall, we were quite happy with this week's trading.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update: https://t.co/pKqdlkpOil
— Quartzite James (@QuartziteRMLLC) July 21, 2023
We think these scenarios have roughly equal probability next week. Where do you think #cbot Dec23 corn #futures will settle next week?
If you think Quartzite Precision Marketing might be a good fit for your operation, now might be a good time to begin considering your 2024 marketing plan; reach out to learn more and discuss your options.
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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 2024 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 Dec23 corn futures settlement on 11/04/22; 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.
