Capturing Volatility from the USDA Acreage Report with New Crop Weekly Options

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.

Although Acreage has the potential to move both old and new crop instruments, the fundamental nature of the report differently impacts instruments of different crop years. Because Acreage reports the planted acreage for the new crop year, it carries a potential primary impact on new crop instruments.

In both 2021 and 2022, the daily price movement resultant the Acreage report failed to spark a clear long- or medium-term directional trend, as had Prospective Plantings reports of prior years. In such an environment, short-term, medium-term, and long-term risks vary.  

Options skew – the difference in implied volatility between options of varying moneyness – can suggest a window into sentiment along the forward curve. Skew suggests demand for calls or puts, possibly indicating either bullishness or bearishness.

Currently, September 2023 Corn options exhibit below-average volatility and higher put skew, while December 2023 Corn options volatility and skew are more aligned with historical norms. September’s relatively high put skew belies greater demand for downside coverage this year compared to previous years, and thus a bearish sentiment on September 2023 Corn futures relative to December. The respective put and call ratios of September and December 2023 Corn options supports this trend.

December 2023 long-dated Corn calls are also historically cheap in terms of volatility and skew, suggesting less upside risk priced into the market. The put/call open interest ratio in past years has sat below 1, though currently it approaches 1.2, a level not seen since 2014.

Pricing in the near-term, expressed via the term structure of Short-Dated New Crop Corn options and New Crop Weekly Corn options, suggests greater near-term volatility, which could be hedged or captured with short-dated or weekly options. 

Week 5 options expire June 30, 2023, the same day as this year’s acreage report. September 2023 Corn futures underlie Week 5 Corn options, while December 2023 Corn futures underlie New Crop Week 5 Corn options.

As an example, selling one at the money 530 New Crop call for 11 cents, while buying a December 560 call for 25 cents will lower premium costs but has short term risk exposure. The 530 New Crop call expires on the day of the report, while the December 560 call is active for an additional 144 days.

• If the report is flat or bearish, the cost of buying the 560 call will effectively be cut from 25 cents to 14 cents. The long-dated call will remain an open position with potential to expire in the money over the next 144 days following Acreage.
• If the report is bullish, loss on the 530 New Crop weekly call will be partially offset by the Dec 560 call. The larger the move on report day, the larger the loss with the possibility of a limit move the day of the report. If the report sets a long-term bullish trend for the summer, the 560 calls have 144 days to possible recover losses.

The USDA Acreage report has the potential to move markets. Because the report provides a survey of new planted acreage, its release is particularly impactful on new crop instruments. CME Group’s suite of new crop options allows market participants to express a nuanced view, whether they want exposure only up until the number, or hope to participate in later movements as well. To learn more, visit Agricultural short-term options.