Weekly Corn Market Update 07/22/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week lower by 39.50-cents (~6.54%), settling at $5.6425/bushel. This week's price action took place in a 62.00-cent (~10.27%) range. The week's low was 5.50-cents below the lower notable band we published last week, and the settlement was 3.00-cents below the lower notable band.
Our corn demand index (CDI) significantly outperformed Dec22 corn futures this week, rising 1.61%. Dec22 corn futures settled at their widest discount (about 77.50-cents) to the CDI since we started tracking it back in November 2021. Based on this discount, we still believe the market is vulnerable to a sharp rally if production concerns develop. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and strength in the Dollar remain concerns.
Dec22 corn futures settled the week decisively below the long-term trendline connecting the lows of 03/31/21 and 09/10/21, and just below the 11/24/21 high of $5.65/bushel, which was a significant level for several months. Significant long-term support is between $5.26 and $5.35 per bushel. We see resistance above the market around $5.80, $5.99, $6.30, $6.47, $6.58, $6.88, $7.04, $7.14, $7.27, $7.37, $7.57, and $7.66/bushel. Daily momentum indicators settled in, or near, oversold territory this week, while weekly momentum indicators remain in neutral to oversold territory. Daily Bollinger Band Bandwidth narrowed this week. Carry spreads from Dec22 to Mar23, May23, and Jul23 strengthened.
Our at-the-money model volatilities for the 2022 crop finished the week much lower, with the front of the curve leading the way. We still believe the high implied volatilities in the options market require opportunistic spreading and careful position management 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. *Note we've added the November expiration, which starts trading next week, to these charts at our best guess of where it should open for trading.
For next week's trading in Dec22 corn futures, we consider trade in the $5.3725-$6.0000 per bushel range unremarkable. Notable moves extend to the $5.0350-$6.5450 per bushel range. Price action beyond that would be extreme. 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 median Fall Price estimate is $5.4600 per bushel this week, with a mode between $5.25 and $5.30. Our Fall Price distribution shifted lower with the selloff and narrowed with decreased implied volatility.
We were fairly active in the new crop corn market for our Quartzite Precision Marketing customers this week. Early Thursday morning, we purchased another out-of-the-money call calendar spread from Short-dated September to October based on favorable implied volatility inputs. On Thursday afternoon, shortly before the close, we rolled in the money short-dated August puts down to a near-the-money straddle. Mid-morning on Friday, we paid a small premium to buy a vertical call spread in December to roll down existing "risk" calls again. Near Friday's close, we collected a nice premium to roll some deep-in-the-money October puts down to near-the-money puts on a ratio. We also purchased futures late Friday to offset exercising the expiring in-the-money short-dated August puts from Thursday's straddle trade. We still think producers should protect their investment with a disciplined and flexible risk management strategy like the one at the heart of Quartzite Precision Marketing. Now might be the right time to consider your 2023 marketing plan. If you have any questions or want to learn more about what we do, we are always happy to chat about the markets, and there is no obligation.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/ZFmVmWvdIh
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 22, 2022
We think these scenarios are equally likely for next week. Where do you think Dec22 corn #futures will settle next week?
Thanks for taking the time to read. We look forward to your questions and feedback. Thanks again. Have a great week.
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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 2023 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 Dec22 corn futures settlement on 11/12/21; 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.
