Weekly Corn Market Update 07/29/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 55.75-cents (~9.88%), settling at $6.2000/bushel. This week's price action occurred in a 72.25-cent (~12.80%) true range. Much of this week's trading happened in the upper notable band we published last week.
Our corn demand index (CDI) significantly underperformed Dec22 corn futures this week, rising only 3.40%. Dec22 corn futures considerably narrowed their discount to the CDI but remain at a significant discount. Based on this discount, we still believe the market is vulnerable to a further sharp rally if production concerns continue. 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 regained the long-term trendline connecting the lows of 03/31/21 and 09/10/21. We see support below the market around $5.99 and $5.80/bushel. Significant long-term support is between $5.26 and $5.35 per bushel. We see resistance above the market around $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 neutral 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 narrowed.
Our at-the-money model volatilities for the 2022 crop finished the week higher. 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.
For next week's trading in Dec22 corn futures, we consider trade in the $5.8925-$6.6200 per bushel range unremarkable. Notable moves extend to the $5.5650-$7.1650 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 $6.0100 per bushel this week, with a mode between $5.75 and $5.80. Our Fall Price distribution shifted higher with the rally and widened with increased implied volatility.
This week, we were fairly active in the new crop corn market for our Quartzite Precision Marketing customers. On Tuesday's strength, we rolled some out-of-the-money October puts up nearer-to-the-money. We made several trades on Thursday's strength as well. We began by selling the wide December call spread we purchased two weeks ago for a nice win. Then we used some of that premium to roll more out-of-the-money October puts up nearer-to-the-money on a ratio. Around the same time, we closed a long futures position we had been holding for an individual customer to flatten his overall exposure. We also closed the out-of-the-money call calendar from short-dated September to October that we purchased last week for a nice win. We also made an outright purchase of an out-of-the-money December put option to balance another individual account's exposure. On Friday, we purchased an out-of-the-money put calendar from November to December based on favorable volatility inputs. 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/19RtE6NAb2
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 29, 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.
