Weekly Corn Market Update 08/04/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week lower by 33.00 cents (~6.22%), settling at $4.9725/bushel. Much of this week's trading occurred below the notable level we published last week.
Our corn demand index (CDI) outperformed Dec23 corn futures this week - rising 1.00%. The ratio of Nov23 soybean futures divided by Dec23 corn futures climbed to 2.68 from 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. The impact of "port-attack scares" in the Black Sea seems to be diminishing with each new headline. The most unexpected development out of Ukraine now might be a renewed grain deal with Russia. The USDA releases its monthly World Agricultural Supply and Demand Estimates next Friday.
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 $4.83, $4.63, and $4.20/bushel. We see technical levels above the market at around $4.98, $5.14, $5.25, $5.48, $5.63, $5.71, $5.84, $6.03, $6.14, $6.31, $6.55, and $6.78/bushel. The market is vulnerable to a significant break of support at the $4.83/bushel level. Daily and weekly momentum indicators finished the week in neutral to oversold territory. Carry spreads from Dec23 to Mar24, May24, and Jul24 widened considerably this week - posting their widest weekly settlements of the year.
Our at-the-money model volatilities for the 2023 crop finished the week lower. 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 $4.7825-$5.2225 per bushel range unremarkable. Notable moves extend to the $4.5850-$5.6050 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 $4.90/bushel with a mode between $4.75 and $4.80/bushel. The expected distribution of fall crop insurance prices shifted lower with the selloff. It also narrowed with the passage of time and decreased 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. In the overnight Sunday to Monday, we closed most of the in-the-money Oct23 puts we rolled up on a ratio on 07/19/23. We closed these puts in various ways depending on the needs of individual customers. For some customers, we made outright sales. For others, we did down-and-out diagonal put spreads to near-the-money Dec23 puts on a one-to-one basis. For a different set of customers, we did ratio put spreads to near-the-money Dec23 puts, picking up a unit in the process. Lastly, we only closed a portion of these puts for some customers who own futures against previous cash sales, leaving enough puts on to protect those customers' futures purchases. Throughout the week, starting Sunday night and finishing on Friday, we purchased an upside call calendar from Nov23 to Dec23 to move the short strike of the call fly we purchased for some customers on 05/17/23 to a shorter duration. On Thursday, we made a small purchase of out-of-the-money short-dated Sep23 puts.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update: https://t.co/XNc1I5rCpJ
— Quartzite James (@QuartziteRMLLC) August 4, 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 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.
