Connection Fall 2016 | Page 13

growing weather conditions in South America. Implied Option Volatility for New-Crop 2017 Options are at a historic low December 2017 corn futures have rallied more than $0.35 to the highest point since June 27. At-the-money option implied volatility for December 2017 futures of 20 percent is well below the 11-year average of 27 percent for this time of year. The combination of a market rebound and historically low implied volatility is presenting a more attractive pricing opportunity for next year’s crop than was available just a few weeks ago. While focus during harvest has been on the rebound in old-crop corn prices, solid gains have also been recorded for new-crop December 2017 futures. For example, December 2017 corn posted a contract low of $3.58 ½ on August 31—the final day of the 2015/16 marketing year. Since then, December 2017 has rallied more than $0.35 to settle at $3.93 ¾ on October 19. This represents the highest closing price for the contract since June 27. As a student of the market, you know how important it is to always remain alert to pricing opportunities for both old and newcrop production. In addition to the somewhat unexpected price rally over the past six weeks, at-the-money (ATM) implied volatility for December 2017 corn options is historically low. For example, the chart at left shows the current December 2017 corn volatility of 20 percent compares to 22 percent last year and an 11year average of 27 percent for this time of year. This year’s volatility is also below the 22 percent to 37 percent range of volatility seen at this time of year over the 20062016 period. Price prediction is impossible and there are many fundamental factors that will ultimately influence the price of December 2017 corn futures over the next 14 months. At a minimum, these include final U.S. crop size for 2016; the fate of South American crops; world demand trends; and, of course, 2017 U.S. growing conditions. Regardless, the combination of a market rebound and historically low implied volatility is presenting a more attractive pricing opportunity for next year’s crop than was available just a few weeks ago. United Agriculture can assist you in a review of your production plans for 2017 and discuss and implement various tools and marketing ideas to give you a start to your new crop marketing. 13