Weekly Corn Market Update 08/27/21
December 2021 (Dec21) corn futures (the benchmark for 2021 corn production) finished the week higher by 16.75-cents (~3.12%), settling at $5.5375/bushel. This week's price action took place in a 26.25-cent (~4.89%) range. All of this week's trading took place within the unremarkable band we published last week.
Our corn demand index (CDI) rose 5.42% this week, outperforming Dec21 corn futures for the second straight week. The CDI overtook Dec21 corn futures this week after three weeks below. Fears about damage from Hurricane Ida to drilling in the Gulf of Mexico propelled crude oil futures higher this week, and in turn, drove the increase in the CDI. We do not expect a long-term structural change in the crude oil market due to Hurricane Ida. Concern over COVID-19 in the U.S. surrounding the Delta variant continues to drag on. The potential for problems elsewhere in the world and from new strains remains - discussion about the Lambda variant continues intermittently. Uncertain executive branch policy, interest rates, and their impact on the Dollar remain significant concerns. Tensions with China continue to build. We believe these factors will continue to provide potential sources of volatility for the foreseeable future.
The uptrend that started from the August 2020 lows remains intact. A weekly settlement below $5.2000/bushel next week would, however, violate the long-term trendline connecting the lows of 10/29/20 and 3/31/21. A violation of that trendline could signal a potential end of the uptrend. We continue to find it unlikely that Dec21 corn futures will see new contract highs. However, markets are unpredictable, and we think participants should create a plan to prepare for all potential outcomes - even unlikely ones. Deferred contracts could also make new highs as 2021 corn production becomes the old crop and 2022 production factors begin to influence prices. Daily and weekly momentum indicators still show mostly neutral readings. Carry spreads from Dec21 to Mar22, May22, and Jul22 narrowed this week.
Implied volatilities for the 2021 crop were generally lower this week. Though, we added several weekly series to our model this week, and are unsure of their levels from last week. Reasonable values for long-term hedgers remain challenging to find at these levels. Opportunistic spreading and careful position management are still virtual necessities to maintain the flexibility needed 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.
Looking ahead to next week's trading in Dec21 corn futures, we would consider movement within the $5.3550-$5.7225 per bushel range to be unremarkable. Notable moves would extend to the $5.0700-$6.0000 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.
Our Crop Insurance Fall Price distribution shifted higher this week due to the rally. The passing of time and decreasing implied volatility combined to narrow the distribution considerably. As we approach the Fall Price discovery period, the passage of time will continue to impact the distribution more and more each week. See below for distribution and cumulative probability charts for fall crop insurance prices and a chart highlighting the distribution's changes.
We were almost entirely inactive in the corn complex for our Quartzite Precision Marketing customers this week. Our only trade this week was the liquidation of a small position in expiring short-dated September puts.
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/Nqp7mfGp7B
— Quartzite Risk Management LLC (@QuartziteRMLLC) August 29, 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.
