Weekly Corn Market Update 12/10/21
Quartzite's Weekly Corn Market Update is back for the 2022 marketing year. Since the previous update, we have spent the last month winding down the 2021 marketing year and preparing for the year to come. We are making a few small changes to the update this year. Please check the latest version of our Guide to Understanding Our Weekly Corn Market Update for details.
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week lower by 1.25-cents (~0.23%), settling at $5.5100/bushel. This week's price action took place in an 11.25-cent (~2.04%) range.
Our corn demand index (CDI) rose 3.52% this week, a partial reversal of last week's sharp decline. For the 2022 crop year, we have rolled our CDI over to April 2023 futures for Crude Oil, Live Cattle, and Lean Hogs. These markets are highly illiquid at present, so readers should factor that into their analysis. 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. Increased input costs for corn production are likely to impact acreage decisions this year, representing a significant upside risk. The USDA released its monthly WASDE report last Thursday.
Dec22 corn futures are in a long-term uptrend supported by a trendline connecting the lows of 03/31/21 and 09/10/21. Additionally, significant support rests below the market between $5.25 and $5.30 per bushel. Most daily momentum indicators are in neutral territory, though several weekly indicators display overbought readings. Carry spreads from Dec22 to Mar23, May23, and Jul23 widened slightly this week.
Implied volatilities for the 2022 crop are high relative to recent years before the 2021 crop year. These elevated levels are not surprising given higher outright corn prices and the market's volatile action last season. In general, most expirations for the 2022 crop are relatively illiquid, and participants should pay extra attention when executing any strategy involving illiquid markets. Given its relative liquidity and somewhat reasonable forward volatility level, we believe the December expiration currently represents the best value for long-term hedgers. 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 Dec22 corn futures, we would consider movement within the $5.3975-$5.6350 per bushel range to be unremarkable. Notable moves would extend to the $5.2450-$5.8350 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.
This week, we are publishing our first look at our expectations for both Spring and Fall crop insurance prices. In addition, this year, we will be posting our estimated median and mode for both prices each week. This week's median Fall Price estimate is $5.2400 per bushel, with a mode between $4.90 and $4.95 per bushel. The median spring price estimate is $5.4750 per bushel, with a mode between $5.35 and $5.40 per bushel. A quick look at the distribution charts will reveal distributions with two slight bumps rather than a standard bell curve.
We have noticed that the options market has displayed a tendency toward this phenomenon, known as "bimodality," over the past several seasons. It became particularly pronounced last season. For 2022, we updated our options model to account for this tendency, and readers can see the results in the charts below. Generally, we avoid this type of model tweak because market phenomena of this nature are often temporary. However, we believe a persistent bimodal structure can be justified in markets with a risk premium, like the grain market.
We're back with the 2022 crop!#AgTwitter & #oatt - cast your vote in this week's poll, then click over to read our Weekly #Corn #Market Update:https://t.co/xvA9lDwyL4
— Quartzite Risk Management LLC (@QuartziteRMLLC) December 12, 2021
We think these scenarios are equally likely for next week. Where will Dec22 corn #futures settle?
We have done small amounts of hedging for our Quartzite Precision Marketing customers for the 2022 season. Mainly, we have recommended cash contracting small portions of 2022 production as producers lock in their input costs. Additionally, we have made small purchases of put options as market liquidity allows. We believe, even despite the uptrend in Dec22 corn futures, producers should protect their investment in expensive inputs with a disciplined and flexible risk management strategy. Now is the time to consider your 2022 marketing plan. If you have any questions or want to learn more about what we do, please reach out. We are always happy to chat about the markets, and there is no obligation.
Thanks for taking the time to read. We look forward to your questions and feedback. Thanks again. Have a great week.
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Corn Demand Index
(The Weekly Price Level Chart will return soon)
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.
