Weekly Corn Market Update 07/30/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 2.25-cents (~0.41%), settling at $5.4525/bushel. This week's price action took place in a 28.50-cent (~5.25%) range - marking the narrowest weekly true range since April for the second-straight week. All of this week's trading took place within the unremarkable range we published last week.
Our corn demand index (CDI) fell 0.54% this week, narrowly outperforming Dec21 corn futures. Dec21 corn futures remain below the CDI for the fourth 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 converging on the idea that the Delta variant represents a real danger. Chatter about returning to more restrictive control measures has begun to pick up steam. 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. Of note, Bollinger Bands on the daily chart are beginning to squeeze - indicating a potential move might be in the cards in the next few weeks. The carry spread from Dec21 to Mar22 finished the week unchanged. The carry spreads from Dec21 to May22, and Jul22 widened.
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. At one point this week, we moved our Dec21 at-the-money model volatility below 30% for the first time in a long time. We noted the occurrence with this Tweet. We are working on Tweeting more frequently about movements in volatility - follow us on Twitter for more. 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-$5.6950 per bushel range to be unremarkable. Notable moves would extend to the $4.9175-$6.1225 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 narrowed this week 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 inactive in the corn complex for our Quartzite Precision Marketing customers this week. On Monday, we made a small purchase of at-the-money puts in the short-dated September expiration. We also rolled down the deep-out-of-the-money calls we have held to "reinstate" our clients' crop insurance yield guarantees on a 1x2 ratio. We made this trade to capitalize on the relative pricing of the two options involved.
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/086OrAqPzH
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 31, 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.
