Weekly Corn Market Update 10/15/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week lower by 4.75-cents (~0.90%), settling at $5.2575/bushel. This week's price action took place in a 27.25-cent (~5.14%) range. This week's low was 4.00-cents below the notable band we published last week.
Our corn demand index (CDI) rose 1.16% this week, outperforming Dec21 corn futures for the fourth consecutive week. The CDI is again at its highest weekly settling level since we started tracking it last November. The CDI also set another new 2021 record for its widest weekly settlement premium over Dec21 corn futures. We believe the main factor supporting corn prices is the high price of related commodities. Should these other markets fall from their elevated levels, the corn market could see severe pressure. Concerns over COVID-19 in the U.S. continue to drag on. The potential for problems elsewhere in the world and from new strains remains. Uncertain executive branch policy, tensions with China, 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 on Tuesday.
Dec21 corn futures closed below their old uptrend line again this week. We continue to expect the long-term uptrend will not resume meaningfully. Daily and weekly momentum indicators show mostly neutral readings. Carry spreads from Dec21 to Mar22, May22, and Jul22 narrowed this week.
Implied volatilities for the 2021 crop finished mixed this week. The front of the curve softened following the WASDE report, while the back of the curve strengthened. Reasonable values for long-term hedgers remain 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 $5.0875-$5.4325 per bushel range to be unremarkable. Notable moves would extend to the $4.8550-$5.6775 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.
The discovery period for the Fall Price for RP crop insurance started last Friday. With 52.38% of the observations currently accumulated, the average rests at $5.2961/bushel. Distribution charts will return after Thanksgiving for the 2022 crop year.
We made several trades in the corn complex for our Quartzite Precision Marketing customers this week. We used weakness on Wednesday to roll out deep-in-the-money November puts to March for a small premium outlay. This trade made us slightly less short the market while extending our overall duration, and thereby capturing some of the strength in carry spreads. We also traded some futures spreads on Wednesday to capture more of the improving carry. We used Friday's rally to roll back the March puts we bought in Wednesday's trade into December, collecting more premium than we laid out on Wednesday. Meaning, we effectively legged into the November/December calendar spread for a credit overall. This trade also got us shorter the market overall while shortening our overall duration due to the weakness in carry spreads. We also traded some futures spreads to shorten our overall duration further to take advantage of Friday's compression in carry spreads. Lastly, we recommended that our clients make some cash sales into Friday's strength.
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/8DFwhQ8vGE
— Quartzite Risk Management LLC (@QuartziteRMLLC) October 16, 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.
