July 2021 Agricultural Options Update

Monthly Highlights

  • The Grain and Oilseed complex exhibited a broad sell off in terms of implied volatility and skew in the month of July. Historically, volatility is still high ‒ specifically for Corn and Soybean Oil ‒ but has decreased 20%-30% in the last month (see chart below).
  • High implied volatility is affecting the entire corn term structure with the Dec 22 contract trading around 25% volatility. Short Dated New Crop (SDNC) options are about to expire for the Dec 21 crop and have been heavily utilized throughout the year. With Dec 22 volatility historically high and sitting a 1 ¼ year out, SDNC options on next year’s crop can significantly decrease premium costs.
  • Corn implied volatility is holding onto seasonal patterns during 2021, but at a substantially greater level with June showing the largest spread from average levels so far.
Option Product July ADV Year/Year % change
Corn 90,836 4%
Soybean 54,462 -16%
Chicago Wheat 20,916 -33%
Soybean Oil 10,254 39%
Short-Dated New Crop Option 18,386 180%
Soybean Meal 7,770 -26%
Hogs 10,155 3%
Live Cattle 7,269 -17%
Ag Weekly Option 7,691 39%
KC HRW Wheat 3,421 -37%
Class III Milk 1,084 -52%
Calendar Spread Option 1,397 146%

Corn Seasonal Volatility Pattern vs. 2021

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Longer dated options seeing greater volatility – As the chart shows, Dec 22 has a very different volatility profile compared to the last eight years.

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CVOL in Ags – CVOL Indexes help visually show the large shift down in 30-day implied volatility that has occurred throughout July. Corn (blue line) and Soybean Oil (purple line) had the most significant move down during July.

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Contract change in Corn and Soybean Oil – Looking at a table of the September and December contracts for Corn and Soybean Oil, it stands out because of the large volatility decrease during July.

Corn
  Last Change on Month % Change on Month
Sept Future 547 -52 -9%
Sept ATM Volatitlity 30 -16 -35%
Dec Future 545.25 -43 -7%
Dec ATM Volatility 30.4 -8 -21%
Dec 25 Delta Risk Reversal 2.5 -4 -63%

 

Soybean Oil
  Last Change on Month % Change on Month
Sept Future 64.42 1.31 2%
Sept ATM Volatility 34 -14.76 -30%
Dec Future 63.04 0.28 0%
Dec ATM Volatility 33.5 -9.07 -21%
Dec25 Delta Risk Reversal 1.13 1.01 47%

Contact Information

Steven A Stasys
Senior Director, Agricultural Options
steven.stasys@cmegroup.com
+312-648-3822


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