Weekly Corn Market Update 09/30/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week higher by 0.75-cents (~0.11%), settling at $6.7750/bushel. This week's price action occurred in a 34.75-cent (~5.13%) range. All of this week's trading took place within the unremarkable band we published last week.
Our corn demand index (CDI) underperformed Dec22 corn futures this week, falling 2.68%. Dec22 corn futures' premium over the CDI widened again this week to levels not seen since April. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the strengthening Dollar remain concerns. The USDA released its Quarterly Grain Stocks report Friday.
Dec22 corn futures remain above the long-term trendline connecting the lows of 03/31/21 and 09/10/21. However, this week they flirted with a shorter-term trendline connecting the lows of 07/22/22 and 08/18/22 - settling just above it. 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, $6.99, $7.04, $7.14, $7.27, $7.37, $7.57, and $7.66/bushel. Daily momentum indicators settled in neutral to oversold territory this week. While weekly momentum indicators settled in neutral to overbought territory. Daily Bollinger Band Bandwidth narrowed again this week and is now near levels not seen since February. Carry spreads from Dec22 to Mar23, May23, and Jul23 expanded this week. Dec22 to Jul23 flipped back to a small carry.
Our at-the-money model volatilities for the 2022 crop finished lower this week except for July 2023, which was up slightly. Option volatilities remain near some of their lowest levels of the year. It may be an excellent time to purchase options if needed. We still think properly managing options at these levels requires 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 $6.5350-$7.0500 per bushel range unremarkable. Notable moves extend to the $6.2500-$7.4050 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 $6.7525 per bushel this week, with a mode between $6.70 and $6.75. Our Fall Price distribution narrowed from the passage of time and lower implied volatilities. See the charts below. These will be our last Fall Price charts for the 2022 crop since the Fall Price Discovery Period begins next week. Bear in mind that during the discovery period, crop insurance protection effectively disappears a little bit each day during October as the average sets.
This week, we made one trade in the corn market for our Quartzite Precision Marketing customers. On Friday's pre-report strength, we purchased some near-the-money puts in the short-date March expiration to begin building our options positions for the 2023 crop year. 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 is 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/8szppsxaqj
— Quartzite Risk Management LLC (@QuartziteRMLLC) October 1, 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.
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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.
