Weekly Corn Market Update 10/06/23
December 2023 (Dec23) corn futures (the benchmark for 2023 corn production) finished the week higher by 15.25 cents (~3.20%), settling at $4.9200/bushel. Dec23 corn futures traded in a 23.00-cent range this week. This week's high was 9.75 cents above the upper remarkable level we published last week.
Our corn demand index (CDI) underperformed Dec23 corn futures this week - falling 3.09%. The ratio of Nov23 soybean futures divided by Dec23 corn futures narrowed from 2.67 to 2.57. 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 - this week we are adding instability in the Middle East as a concern.
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 approximately $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 mixed on the week.
Our at-the-money model volatilities for the 2023 crop finished higher this week. Our new crop model volatilities remain lower than comparable volatilities last year. Our primary focus remains managing the transition from crop insurance to other risk management tools. 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 $4.7725-$5.0800 per bushel range unremarkable. Notable moves extend to the $4.5750-$5.3125 per bushel range. Price action beyond that would be extreme. A chart of these levels over time is available below.
The discovery period for the fall crop insurance price started this week. With 22.7% of the observations recorded, the average is $4.9035/bushel.
We made several trades in corn for our Quartzite Precision Marketing customers this week. On Monday, we rolled some Dec23 puts up for several customers. On Tuesday, we collected a small premium to roll some near-the-money Dec23 calls we owned from previous trades into Nov23. On Wednesday, we got a partial fill legging the purchase of a downside put calendar from short-dated May24 to Dec24. We love this trade as a replacement for the short-dated Jul24 to Dec24 calendar we sold last week. We finished the total quantity we wanted on Thursday, then added another unit at a slightly better price. Throughout the week, we purchased several deep-in-the-money Mar24 puts to replace the coverage our clients are losing as crop insurance goes through its discovery period.
If you think Quartzite Precision Marketing might be a good fit for your operation, now is the time to consider your 2024 marketing plan; reach out to learn more and discuss your options.
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 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.
