Weekly Corn Market Update 08/13/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 16.50-cents (~2.96%), settling at $5.7300/bushel. This week's price action took place in a 46.75-cent (~8.40%) range. The week's high of $5.9425/bushel was 12.00-cents above the upper-notable level we published last week. The weekly settlement was 11.25-cents below that level.
Our corn demand index (CDI) fell 0.41% this week, underperforming Dec21 corn futures for the second straight week. Concerns over COVID-19 in the U.S. surrounding the Delta variant seem to be peaking. Chatter about returning to more restrictive control measures continues, but discussion about caseload growth beginning to slow is rising. 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 USDA released its monthly WASDE report this week. Lowered yield expectations in the WASDE helped propel prices higher.
The uptrend that started from the August 2020 lows remains intact. Thursday's post-WASDE price action failed to clarify the chart, in our opinion. We can see the argument that the market broke out to the upside, but, in our opinion, it did so with too little enthusiasm to call a real breakout. We still find it unlikely that Dec21 corn futures will see new contract highs. However, markets are unpredictable, and we think participants should create a plan to prepare for all potential outcomes - even unlikely ones. Deferred contracts could also make new highs as 2021 corn production becomes the old crop and 2022 production factors begin to influence prices. Daily and weekly momentum indicators still show mostly neutral readings. Bollinger Bands started to expand on the daily chart this week. Carry spreads from Dec21 to Mar22, May22, and Jul22 compressed this week. In the end, we would consider this week's price action to be highly-suspect. False-break outs can and do occur. When they happen, they can indicate significant price action in the other direction.
Implied volatilities for the 2021 crop fell across the board this week. Despite the decline in implied volatility, reasonable values for long-term hedgers are still challenging to find at these levels. 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 $5.5575-$5.9625 per bushel range to be unremarkable. Notable moves would extend to the $5.2725-$6.3025 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 higher this week due to the rally. The distribution also narrowed due to decreases in implied volatility and the passage of time. As we approach the Fall Price discovery period, the passage of time will begin to impact the distribution more and more each week. See below for distribution and cumulative probability charts for fall crop insurance prices and a chart highlighting the distribution's changes.
We remained largely inactive in the corn complex for our Quartzite Precision Marketing customers this week. On Thursday, we made a few small futures spread trades to capture some of the compression in carry spreads.
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/4tya6fR0Fz
— Quartzite Risk Management LLC (@QuartziteRMLLC) August 14, 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.
