Weekly Corn Market Update 07/01/22
December 2022 (Dec22) corn futures (the benchmark for 2022 corn production) finished the week lower by 66.50-cents (~9.87%), settling at $6.0750/bushel. This week's price action took place in a 69.75-cent (~10.39%) true range. The week's low was 26.25-cents below the lower notable band we published last week, and the settlement was 23.00-cents below that level.
Our corn demand index (CDI) outperformed Dec22 corn futures again this week, falling only 0.35%. Dec22 corn futures are now trading at just over a 56.00-cent discount to the CDI. Based on this significant discount, we believe the market is vulnerable to a sharp rally on virtually any production concerns. The war in Ukraine, executive branch policy, tensions with China, Federal Reserve interest rate policy, and strength in the Dollar remain concerns. The USDA released its Quarterly Grain Stocks and Annual Acreage reports on Thursday.
Dec22 corn futures barely remain in a long-term uptrend supported by a trendline connecting the lows of 03/31/21 and 09/10/21. That trendline held this week, but it looms just a few cents below this week's settlement. We see support below the market near $5.99, $5.80, and $5.65/bushel. Significant long-term support is between $5.26 and $5.35 per bushel and would require a substantial break in the longer-term trend to test. We see resistance above the market around $6.58, $6.47, $6.30, $6.88, $7.04, $7.14, $7.27, $7.37, $7.57, and $7.66/bushel. Daily momentum indicators finished well into oversold territory this week, while weekly momentum indicators remain in neutral territory. Daily Bollinger Band Bandwidth widened this week. Carry spreads from Dec22 to Mar23, May23, and Jul23 strengthened.
Our at-the-money model volatilities for the 2022 crop finished the week lower. We believe October options currently represent the best value for hedgers. Given the still high implied volatilities in the options market, we believe opportunistic spreading and careful position management are crucial to managing 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 $5.7700-$6.4600 per bushel range unremarkable. Notable moves extend to the $5.4025-$7.0275 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.
Our median Fall Price estimate is $5.8600 per bushel this week, with a mode between $5.60 and $5.65. Our Fall Price distribution shifted lower with the selloff and narrowed with decreased implied volatility.
We had another busy week in the new crop corn market for our Quartzite Precision Marketing customers. In the overnight session early on Thursday morning, we traded a ratio put spread in short-dated August to protect some of our long volatility exposure. We collected a nice premium from selling two out-of-the-money puts and purchasing a single further out-of-the-money put. This trade effectively turned an existing in-the-money put into a long put fly. We later sold that put fly for another nice premium when implied volatility and futures prices softened after the USDA release. With volatility softening after the number, we traded another ratio put spread, this time in short-dated September, and we bought the two options rather than selling them. In that trade, we collected a nice premium to make a closing sale of a deep-in-the-money short-dated September put and buy two near-the-money puts. Later on Thursday, we sold a vertical put spread in short-dated August to roll in-the-money puts down nearer to the money. On Friday, we sold another deep-in-the-money short-dated September put and used some of that premium to buy a near-the-money October straddle. This trade also added to our net long volatility exposure. On Friday, we also made an outright futures purchase for an individual customer to help flatten his overall exposure. In that specific situation, we reduced a growing net short directional postion resulting from our option trades on his behalf, extensive earlier cash sales, and the increasing probability of a crop insurance indemnity from falling prices. We still believe producers should protect their investment in expensive inputs with a disciplined and flexible risk management strategy like the one at the heart of Quartzite Precision Marketing. It may still be the right time to consider your 2022 marketing plan. 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/83yoUGKBnf
— Quartzite Risk Management LLC (@QuartziteRMLLC) July 1, 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. Have a great week, and enjoy your Independence Day!
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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.
