Cornstalks sway in the breeze and (corn-fed) ‘dogs are on the grill: American agriculture is front of mind in the summertime. Weather, planting, harvest, and stocks all impact field crops in the United States throughout the summer, making the season the most volatile of the year for U.S. corn. In 2023, on the back of annual seasonal volatility, drought in the U.S. corn belt and persistent geopolitical instability have lifted Corn volatility in the current season above historic levels.
Corn seasonality in the United States
Field crops such as corn demonstrate seasonality, or regular patterns of supply and demand over the course of the calendar year. In the United States, corn is planted in the spring and harvested in the fall, with the specific time of planting and harvest dependent on the particular conditions of the year.
CME Group Corn futures are listed for expiration in March, May, July, September, and December. Midwestern Corn that is harvested in the fall, after drying in the field, is deliverable by November or December and serves as the underlying physical commodity for December Corn futures. As such, December Corn futures are referred to as a “new crop” instrument because the grains deliverable against the futures have been newly harvested. May Corn futures, conversely, are an “old crop” expiry, because the grain deliverable against May Corn futures has been in storage since its harvest the prior autumn. Relative Corn futures prices tend to peak in the summer, as the old crop ages and supply tightens.
As old crop corn is sold and stocks decline throughout the summer, the health of the new crop, which is in the process of growing, becomes of increasing importance. All eyes turn to the corn in the ground, which is experiencing the most critical period of its growing season in the United States during the months June through August. Weather conditions, such as temperature and rainfall, can greatly impact crop development and yields. Unexpected circumstances including drought, flooding, or extreme heat between planting and harvest can significantly affect the supply dynamics of corn, leading to increased volatility in futures prices.
New crop instruments experience distinct market dynamics from old crop instruments. Extreme summer weather, for example, may impact new crop instruments more dramatically than it does old crop, since it may affect yields. If that weather were to complicate immediate river transportation, however, old crop instruments may react, since movement of their underlying physical commodities could be impeded.
December 2021 Corn futures
Corn volatility peaks in late June and early July, a period during which the USDA Acreage report is released. Among USDA reports released throughout the year, Acreage is widely viewed as the most impactful, as it reports an estimation of planted acreage by the nation’s farmers. Demonstrative of the report’s potential, the June 30, 2022, Acreage report rocked markets when the USDA reported 89.921 million acres of corn planted in the United States. December 2022 Corn futures fell 34 cents that day, dropping 5.20% from the day’s open to the daily settlement price.
The prior year’s June 30, 2021, Acreage report proved even more impactful when the reported acreage of 92.692 million acres fell short of the median polling estimate by 908,000 acres, sending Corn futures soaring. September and December 2021 Corn futures (as well as later expirations) settled at limit, 40 cents above the opening price, marking the largest outright move in over a decade.
The year ahead
Corn CVOL by week 2013-2023
Measured in terms of CVOL, a global volatility benchmark derived from options pricing, Corn volatility in 2023 at latest hovers around that of 2022, which was widely seen as a year of exceptional volatility for grains after the onset of the Russo-Ukrainian War.
Temperature Outlook, July-September 2023
Early Summer 2023 has experienced a significant jump in Corn volatility, due to unexpected drought in corn-growing regions resulting in worse-than-expected crop progress, in addition to enduring geopolitical instability in the Black Sea region.
Corn CVOL and Front-Month Futures Price
Weather and crop conditions are, naturally, a driving force in summer volatility, and this year is no exception. The U.S. National Oceanic and Atmospheric Administration (NOAA) is predicting a long, hot summer in much of the United States due in part to the departure of La Niña, a cooling force and an anticipated El Niño, a warming influence. Although NOAA previously predicted temperatures in the corn-growing powerhouse states of Indiana, Illinois, and Iowa to be normal relative to historic averages, the agency has revised its forecast to include likely hotter-than-average conditions in the upper-Midwest.
As of the week ending June 18, 2023, a lower percent of the corn crop is estimated to be good or excellent grade than before 2019, according to the USDA NASS Crop Progress report, due to drought. Illinois corn took a particular hit, with 68% of corn rated good or excellent in late May, and only 36% on the June 20, 2023 report.
Crop Progress and Condition, Corn in Illinois on June 18, 2023
Express a view or precision-hedge
The suite of CME Group Agricultural futures and options holds the tools with which to express a nuanced view, or to precision-hedge risk throughout seasons of volatility. Deep and liquid front-month futures such as July and September Corn allow for directional exposure responding to immediate price movement. New crop products such as Short-Dated New Crop options, New Crop Weekly options, conventional new crop options, and new crop futures allow market participants exposure to the new crop year as its growing season develops. Whatever your risk profile or market view, learn more at www.cmegroup.com/agriculture.
All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.