Weekly Corn Market Update 09/29/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week lower by 0.50 cents (~0.10%), settling at $4.7675/bushel. Dec23 corn futures traded in a 16.25-cent range this week. This week's trading occurred entirely within the unremarkable range we published last week.
Our corn demand index (CDI) underperformed Dec23 corn futures this week - falling 0.76%. The ratio of Nov23 soybean futures divided by Dec23 corn futures narrowed from 2.72 to 2.67. 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.
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 $4.63 and $4.20/bushel. We see technical levels above the market at approximately $4.83, $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. Daily and weekly momentum indicators finished the week with little consensus. Carry spreads from Dec23 to Mar24, May24, and Jul24 ended unchanged to slightly wider on the week.
Our at-the-money model volatilities for the 2023 crop finished mixed this week. Our new crop model volatilities remain lower than comparable volatilities last year. Our primary focus remains trading around our clients' established positions to capture market volatility to help offset time decay. Next week, we will begin replacing crop insurance price protection with other risk management tools; we will continue that process throughout October as the price discovery period passes. 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 $4.6425-$4.8925 per bushel range unremarkable. Notable moves extend to the $4.4425-$5.0800 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 $4.7675/bushel with a mode between $4.75 and $4.80/bushel. The expected distribution of fall crop insurance prices narrowed with the passage of time and lower implied volatilities. See the crop insurance charts below. This week is the last week we will publish these charts for the 2023 growing season.
We made several trades in corn for our Quartzite Precision Marketing customers this week. On Monday, we purchased some sub-penny upside calls in Nov23 to buy back part of the short leg of several call flys we've had on the sheets for a while. On Tuesday, we made a closing sale of a slightly downside put calendar from short-dated Jul24 to Dec24 that we purchased in August. We originally planned to hold this trade longer, but it improved enough that we decided to book the profit and wait for another day. We got a small partial fill on some upside calls on Wednesday in short-dated Mar24. We then turned these calls into synthetic puts with a matching sale in Dec24 futures. On Friday morning before the close of the overnight session, we purchased some slightly-in-the-money puts in short-dated Mar24. Early in Friday's day session, we made a closing purchase of some dollar-cheap downside Dec23 puts for a single customer to close the short leg of a put fly we established for him previously. After the USDA released its Quarterly Grain Stocks and Crop Productions estimates, we bought back more of the Nov23 calls we purchased on Monday. Overall, we were quite happy with this week's trade in an otherwise quiet week.
#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update: https://t.co/DIh8XrCSEC
— Quartzite James (@QuartziteRMLLC) September 29, 2023
We think these scenarios have roughly equal probability next week. Where do you think #cbot Dec23 corn #futures will settle next 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 2024 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 Dec23 corn futures settlement on 11/04/22; 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.
