March 2021 Agricultural Options Update

Monthly Highlights

  • Soybean Oil futures hit a nine-year high with multiple price limits occurring, helping to drive the second highest average open interest in options (263K) and third highest ADV (19.1K) in a month. The May options set new highs in terms of implied volatility looking back to 2007.
  • For Live Cattle options, the commitment of traders report (COT) is showing multi-year short positions for producers and multi-year long positions for managed money.
  • In March, Corn and Soybean implied volatility took different paths, shown through the new CVOL Indexes, as the market prepared for the explosive Prospective Planting report.
  • Short Dated New Crop options set an all-time open interest record in Q1 as market participants face elevated volatility and turn to short-term options as a cost-effective hedge.

Option Product

March ADV

Year/Year % Change

Corn

82,119

-9%

Soybean

55,280

-6%

Chicago SRW Wheat

14,518

-64%

Soybean Oil

19,121

98%

Ag Weekly Option

10,759

181%

Live Cattle

9,140

-47%

Soybean Meal

8,736

-44%

Hogs

8,667

-49%

Short-Dated New Crop Option

5,507

9%

KC HRW Wheat

2,185

-62%

Class III Milk

1,340

-39%

Feeder Cattle

1,048

-50%


Corn and Soybean volatility – Looking at the CVOL Index, we can see Corn implied volatility increased substantially (more than Soybeans did) going into the Prospective Planting Report. Corn started March trading at 28%, six volatility points over Soybeans, and the spread between Corn and Soy increased as much as 12 volatility points on March 26 and then narrowed going into March 31.

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The Convexity Index is a new addition to the suite of Volatility Indices. It looks at the CVOL Index as a ratio to the at-the-money (ATM) implied volatility. When the index is above one, the complete range of options collectively have more implied volatility than at-the-money options. The Convexity Index is a great way to measure the “smile” of the volatility term structure. As the smile, or curve, of out-of-the-money options compared to at-the-money options increases, so does the convexity metric. You can see that during March, the convexity for Soybeans increased while the convexity for Corn decreased until Prospective Planting approached. 

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The takeaway from looking at both charts: ATM Corn implied volatility increased throughout the month and the smile of the term structure slightly decreased while ATM Soybean implied volatility stayed mostly constant in March, but out-of-the-money options increased in volatility relative to ATM options. 


Live Cattle – commitment of traders report (options only) – Looking at the commitment of traders report for options, producers/merchants recently held a net short position of 15K contracts, levels not seen since July 2017. The Managed Money category held a net long position of 4,378, a level not seen since May 2017.

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Soybean Oil – With Soybean Oil prices hitting a nine-year high in March, the options complex was very active. The May contract set new highs in terms of implied volatility looking back to 2007.

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Short Dated New Crop options – At the end of March, Short Dated New Crop options set a record of 132K contracts of open interest and had anss ADV of 5.5K. Corn held 75% of the outstanding open interest and made up 68% of the volume  with the May maturity holding the most OI.

*CME Data

Contact Information

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


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