Posted by: usset001 | June 10, 2014

Historical look at volatility in the new crop (December) corn contract

New Crop CornThe month of May was a tough one on new crop corn prices, as the Dec’14 contract dropped 42 cents from the first day of the month to the last. Should we be surprised? It is that the time of the year – the growing season can send prices reeling or roaring, depending on weather conditions.

I pulled together a history of volatility in the new crop (December) corn contract from 1990 forward. To be specific, I analyzed the twelve months prior to the December contract delivery (December of the prior year thru November of the contract year, e.g. for the Dec’06 contract, I analyzed monthly price changes from December 2005 thru November 2006). I analyzed the data two ways. First, I looked for price changes greater than 10% from the price at the start of each month. I also looked at the monthly price range – the difference between the maximum and minimum closing prices within each month.

(It’s worth reminding ourselves that 10% of $2.50 futures ( see 1998-2002) is 25 cents/bu., while 10% of $4.50 corn (see this year) is 45 cents/bu., and 10% of $7.00 is 70 cents/bu.)

Concerning price changes from the first to the last day of the month…

  • From the first day to the last day of each month, price moves of 10% or greater occurred in 34 of the 194 months considered, or 12% of the time. That works out to just one or two months each year.
  • Such a broad look at all months glosses over the tendency for big months to cluster. There were 9 years with no months registering a 10% price move – the most recent year was last year (the Dec’13 corn contract). There were six years with three or more months with big price moves (1996, 2004, 2008, 2009, 2010, and 2011).
  • Such a broad look at all months also glosses over the volatility of July. Price moves of 10% or greater, from the first day of July to the last day of July, occurred in 10 of the 24 months considered, or 42% of the time. From a crop development perspective, “July makes the corn crop” and that shows in the higher volatility in prices during this critical month. For the record, of the 10 months when closing prices moved more than 10% during July, 6 of the 10 years were lower price moves, and 4 of the 10 were higher. The most recent example is 2012, when Dec’12 corn futures started the month of July at $6.55/bu. and ended the month with a close of $8.05/bu.
  • Dec’14 corn is currently trading near $4.50/bu. For perspective, a price move of 10% in July points to prices close to $4.00/bu. (if favorable weather continues) or $5.00/bu. (if the weather Gods are angered).

Concerning the December corn contract price range within each month (the difference between the maximum and minimum closing prices)…

  • A price range of 10% or greater occurred in 82 of the 194 months considered, or 42% of the time. New crop price ranges of 10% or more or fairly common.
  • There were only two years since 1990 when no months registered a range of 10% or more (1993 and 1995). Would you like the most recent example of a month with a price range of 10% or more? In May of this year, the Dec’14 contract reached as high as $5.11/bu. and as low as $4.57/bu. – a 54 cent range or 10.8% of the price at the start of the month.
  • Once again, the month of July stands out. A price range of 10% or greater occurred during the month of July in 18 of the last 24 years, or 75% of the time. Price range of 10% or greater occurred close to half the years for the months of June, August and September. The growing season rules!
  • Should we be surprised if the Dec’14 corn contract displays a price range of 50 cents/bu. or more during the months of June, July and August? No.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: