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.
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