Weekly Corn Market Update 08/26/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 41.00-cents (~6.58%), settling at $6.6425/bushel. This week's price action occurred in a 56.75-cent (~9.11%) range. The week's high was 17.00-cents above the notable band we published last week, and the settlement was 10.25-cents above the upper-notable level.
Our corn demand index (CDI) underperformed Dec22 corn futures this week, rising only 0.21%. Dec22 corn futures are now trading at a premium to the CDI - indicating increasing supply concerns. Pro Farmer's 2022 National Corn and Soybean Crop Estimates, released after the bell on Friday, seem to validate this concern. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the strengthening Dollar also remain concerns.
Dec22 corn futures settled above the long-term trendline connecting the lows of 03/31/21 and 09/10/21. We see support below the market at around $6.58, $6.47, $6.30, $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 $6.88, $7.04, $7.14, $7.27, $7.37, $7.57, and $7.66/bushel. Daily and weekly momentum indicators settled in neutral territory this week - though some daily momentum indicators are nearing overbought levels. Daily Bollinger Band Bandwidth widened this week. Carry spreads from Dec22 to Mar23, May23, and Jul23 contracted.
Our at-the-money model volatilities for the 2022 crop finished the week higher. However, we continue to believe it may be a good time to add long options positions if needed. We still believe the elevated 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 $6.3675-$6.9450 per bushel range unremarkable. Notable moves extend to the $6.0625-$7.3025 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 $6.5650 per bushel this week, with a mode between $6.35 and $6.40. Our Fall Price distribution shifted higher with the rally and broadened with increased implied volatility. See the charts below.
This week, we were somewhat active in the new crop corn market for our Quartzite Precision Marketing customers. On Monday, we purchased some dollar-cheap, out-of-the-money calls in the Short-Dated September and September Week One expirations. On Tuesday, we rolled some out-of-the-money October puts up nearer to the money, as the Short-Dated September calls from Monday came into the money. Early Friday, as Powell's speech in Jackson Hole began to make headlines, we sold futures to offset our now in-the-money Short-Dated September calls. Due to the response of broad financial markets after Powell's speech, we used a portion of the gains from those calls to purchase some dollar-cheap Short-Dated September puts that expired later in the day. 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/2cqiQPv3MR
— Quartzite Risk Management LLC (@QuartziteRMLLC) August 27, 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.
