Corn is oversold; watch for short covering to provide price spark, analyst says

Brazil’s corn crop output drops.

The forecast for the Midwest after June 9 may become an important factor for the corn market soon.

Western Iowa, Minnesota, the Dakotas, and Nebraska have almost no rainfall in the forecast for the next seven days. In addition, the 6- to 10-day forecast calls for much above-normal temperatures in the central part of the country.

The 8- to 14-day models also show much above-normal temperatures and mostly dry conditions, except for rains in the Dakotas and Minnesota.

With managed money traders holding a net short position of 245,000 contracts of corn in the most recent Committments of Traders Report, it will not take much in the way of positive news to spark significant buying.

Strong gains in the U.S. stock market and a further advance in energy prices helped support a bounce to a four day high on Tuesday. Open interest is in an uptrend, suggesting that fund traders are building a larger and larger net short position.

READ MORE: Coronavirus cuts U.S. corn use

Soil conditions are nearly ideal for the start of the growing season, but hot weather and very little rain are in the forecast for the western Corn Belt for the next two weeks. 

Corn closed higher yesterday but well off of the highs. A positive tone for global risk sentiment provided early support, while stronger energy prices gave a boost to corn prices as that improves the ethanol demand outlook. However, estimates that the pace of U.S. corn plantings is faster than expected weighed on the market and kept further gains in check.

Tuesday’s Crop Progress Report showed that 88% of the U.S. corn crop was planted as of May 24 vs. the trade expectations calling for 90%. A year ago, the crop was 55% planted, and the 10-year average for this date is 84%. As of Sunday, 70% of the crop was rated good/excellent vs. a 10-year average of 73%. Iowa was 81% good/excellent, Illinois 55%, Nebraska 82%, Minnesota 81%, and Kansas 63%. 

READ MORE: 88% of the U.S. corn crop is seeded, below expectations, USDA reports

Agroconsult cut its forecast for Brazil’s 2019/2020 safrinha corn production by 3 million tonnes to 71.7 million, and this sparked some buying and short covering early in the day on Tuesday.

USDA’s weekly Export Inspections Report on Tuesday showed corn inspections for the week ending May 21 came in at 1,091,972 tonnes, which was at the low end of expectations calling form for 1 to 1.4 million. Cumulative inspections for the 2019/2020 marketing year have reached 27,351,343 tonnes which is 29% below last year. This represents 61% of the USDA's forecast for the marketing year vs. a five-year average of 66%.

Market Ideas

Given the oversold condition of the market, any minor positive news or any shift to questionable weather for the U.S. crop could spark significant short covering. Uptrend channel support for December corn futures comes in at $3.32¾ today, with $3.42¾ and $3.48 as the next resistance levels. July corn futures need a close above $3.22¾ to turn the charts positive.

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