Weekly Corn Market Update 10/21/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week lower by 5.50-cents (~0.80%), settling at $6.8425/bushel. This week's price action occurred in an 18.25-cent (~2.65%) range - the narrowest since February. This week's trading again fell entirely within the unremarkable band we published last week. This week was the sixth straight week and seventh week out of the last eight where all trading took place within our unremarkable band.
Our corn demand index (CDI) outperformed Dec22 corn futures this week, rising 2.75%. Dec22 corn futures' premium over the CDI narrowed this week, but the premium remains high. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the strengthening Dollar remain concerns.
Dec22 corn futures remain above the long-term trendline connecting the lows of 03/31/21 and 09/10/21. However, this week they again settled below a shorter-term trendline connecting the lows of 07/22/22 and 08/18/22. Several pundits have made much ado about the wedge resulting from the confluence of this uptrend trendline and a downtrend trendline connecting the highs of 05/16/22 and 06/17/22. Alas, the market has traded on both sides of the wedge in the past several weeks and snuck out the end of the wedge with little fanfare. Technical analysis is one of those things that we think works when it works and doesn't when it doesn't, which is why we put so little stock in it. That said, 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 territory again this week. Weekly momentum indicators remained in neutral to overbought territory. Daily Bollinger Band Bandwidth narrowed slightly this week and remained very tight overall. Carry spreads from Dec22 to Mar23, May23, and Jul23 narrowed this week. The spread from Dec22 to Jul23 is once again inverted.
Our at-the-money model volatilities for the 2022 crop finished higher this week. 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 $6.6400-$7.0625 per bushel range unremarkable. Notable moves extend to the $6.3475-$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.
The discovery period for the Fall Crop Insurance Price continued this week. The average is currently $6.8595 per bushel, with 71.4% of the observations accumulated.
This week, we did not make any trades in the corn market for our Quartzite Precision Marketing customers. 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. We're accepting new customers for the 2023 crop year, but space is limited, so contact us soon if you're interested. 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/VYebXBlX4e
— Quartzite Risk Management LLC (@QuartziteRMLLC) October 22, 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.
