Weekly Corn Market Update 10/22/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 12.25-cents (~2.33%), settling at $5.3800/bushel. This week's price action took place in a 17.00-cent (~3.23%) range. This week's high was 3.25-cents below the notable upper level we published last week.
Our corn demand index (CDI) fell 1.55% this week, posting its first weekly decline since September 10th. If this pause in the CDI proves to be a reversal, it could spell significant trouble for corn prices. 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.
Dec21 corn futures settled below their old uptrend line for the third straight week. We find this week's strength unconvincing and expect that the long-term uptrend will not meaningfully resume. Daily and weekly momentum indicators show mostly neutral readings. Carry spreads from Dec21 to Mar22, May22, and Jul22 finished mostly unchanged this week.
Implied volatilities for the 2021 crop finished mixed this week. The front of the curve softened, while the back of the curve strengthened. 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 $5.2300-$5.5400 per bushel range to be unremarkable. Notable moves would extend to the $5.0175-$5.7725 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 continued this week. With 76.19% of the observations currently accumulated, the average rests at $531.14/bushel. Distribution charts will return in December for the 2022 crop year.
We were mostly inactive in the corn complex for our Quartzite Precision Marketing customers this week. Most of the trades we made this week were to adjust individual positions as yield data came in. In general, we used this week's rally to make bearish adjustments to our client portfolios to offset the increasing length from the gamma in their option positions.
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/bgHEnw2o2S
— Quartzite Risk Management LLC (@QuartziteRMLLC) October 23, 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.
