Weekly Corn Market Update 11/11/22
First, thanks for excusing the absence of an update last week. This week's update will be slightly longer than usual to cover the week we missed.
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week lower by 23.00-cents (~3.38%), settling at $6.5800/bushel, on the heels of last week's 0.25-cent (~0.04%) rally. This week's price action occurred in a 28.25-cent (~4.15%) true range after last week's 21.50-cent (~3.16%) range. Both this week and last week, the market touched our notable ranges. Last week we touched the notable upper band and settled almost unchanged. This week, the market traded and settled in our lower notable band.
Our corn demand index (CDI) outperformed Dec22 corn futures for the past two weeks. Last week it rose 2.77%, and this week it fell 1.12%. Over the past two weeks, the relative performance of Dec22 corn futures and the CDI has brought them nearly back into line. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and the strong Dollar remain concerns. Recent price action in the Dollar has alleviated some of that latter concern.
This week, Dec22 corn futures were supported by and 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. For the first time, they also settled below a trendline connecting the lows of 09/01/22 and 09/28/22. This week futures settled right at the $6.58 level we have been mentioning for quite some time. We see support below the market at around $6.47, $6.30, $5.99, and $5.80/bushel, with significant long-term support 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. Weekly momentum indicators displayed mostly neutral readings at the close of trading this week. Daily Bollinger Band Bandwidth widened this week after widening slightly last week. Carry spreads from Dec22 to Mar23, May23, and Jul23 narrowed this week after posting mixed results last week.
Our at-the-money model volatilities for the 2022 crop finished mixed this week and last. Option volatilities remain near their lowest levels of the year. It may be an excellent time to purchase options if needed. We believe 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 $6.3925-$6.7775 per bushel range unremarkable. Notable moves extend to the $6.0700-$7.1400 per bushel range. Price action beyond that would be extreme. Be sure to visit our Twitter page to vote in the poll we typically hold there each week. While you are there, please give us a follow.
We've been active in the corn market for our Quartzite Precision Marketing customers for the past two weeks. To begin, we've made quite a few "one-off" trades to adjust individual positions as we have gained more clarity on each client's final yield. For brevity's sake, we'll leave those out of this recap. Last week we started near the open on Sunday night (10/30) by legging the purchase of a downside vertical put spread in Dec22. On Monday (10/31), we opened a position in some dollar-cheap weekly calls that we sold half of later in the day for a small scalp. On Tuesday (11/1), we sold the balance of those calls for a slightly smaller scalp.
This week on Tuesday (11/8), we sold a vertical put spread in Dec22 that was closing on both legs. We made a quick scalp on Wednesday (11/9) in some dollar-cheap weekly puts. We rolled some in-the-money Dec22 puts down near the open on Thursday morning (11/10) to less in-the-money puts to consolidate our position and take some intrinsic value off the table. Shortly after that, we purchased some near-the-money weekly calls to protect gains on our primary Dec22 put position, which we were waiting to roll down. As the selling intensified into Thursday's close, we decided to roll that primary Dec22 put position down from in the money to just out of the money. Our weekly calls from Thursday morning expired "worthless." Still, they gave us the coverage we needed to be patient on rolling our primary put position down, so we were happy with the trade. We 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/pspf5yYmQk
— Quartzite Risk Management LLC (@QuartziteRMLLC) November 12, 2022
We think these scenarios have roughly equal probability next week. Where do you think #cbot 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.
