Weekly Corn Market Update 07/23/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 9.00-cents (~1.63%), settling at $5.4300/bushel. This week's price action took place in a 32.50-cent (~5.89%) range - the narrowest weekly true range since April. All of this week's trading took place within the unremarkable range we published last week.
Our corn demand index (CDI) fell 0.11% this week, outperforming Dec21 corn futures. Dec21 corn futures remain below the CDI for the third straight week - an occurrence we have not seen since April. See the chart below. Concerns over COVID-19 in the U.S. seem to be waffling with near-daily headlines about the delta variant's dangers (or lack thereof). 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.
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. We expect the murky chart pattern to resolve itself by mid to late August. It seems unlikely we will see new contract highs in Dec21 corn futures. However, markets are unpredictable, and we think participants should create a plan to prepare for all potential outcomes - even unlikely ones. There also remains a possibility for deferred contracts to make new highs as 2021 corn production becomes the old crop and begins to be influenced by 2022 production factors. Daily and weekly momentum indicators show mostly neutral readings. The carry spreads from Dec21 to Mar22, May22, and Jul22 widened 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. The November serial expiration starts trading next week. We have added this new expiration to our volatility charts at levels we find attractive relative to nearby expirations. 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 $5.1750-$5.7350 per bushel range to be unremarkable. Notable moves would extend to the $4.8250-$6.2750 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 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 generally inactive in the corn complex for our Quartzite Precision Marketing customers this week. We made a few trades on Friday to close the expiring short-dated August puts we purchased last week at a small loss. At this point, the bulk of our options positions consists of slightly-in-the-money options in the October and December expirations. In addition, we hold various futures positions (mainly spreads) on behalf of our clients. At the same time, our clients have cash and physical market positions to help manage their risk.
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/QMHmjaz6sf
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 24, 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.
