High-Flying Corn May Cause ‘Bull Envy’ In Oil Investors

Despite OPEC’s best efforts to cut production, crude futures are struggling to make headway after a gain of more than 30% over the past six months. But thanks to underplanting, corn futures have jumped 15% in just eight days.

Corn futures are trading at one-year highs after a government crop report showed planting hovered at a historic 49% low as wet and cold temperatures hampered cultivation.

With corn soaring to the top of investor ranking for agricultural markets, analysts are also downgrading another crop that has been overplanted: soybeans.

Corn is up more than 5% year-to-date, while U.S. soybeans are down over 7% and soymeal has slid by more than 3%.

Soy products are poor for two other reasons – both to do with top buyer China. The U.S.-Sino trade war has seen China apply a 25% counter-tariff on U.S. soybeans, hitting demand. The dreaded African Swine Fever has, meanwhile, wiped out nearly a fifth of China’s hog population, resulting in severely reduced need for soymeal that makes up the pig feed.

The Trump administration’s proposed assistance of more than $15 billion to U.S. farmers hit by the trade war could insulate some of the pain felt by soybean growers while helping corn planters all the same.

Mike Seery of the Seery Futures consultancy in Plainfield, Illinois, said he had a bearish call on soybeans and soymeal, but cautioned bulls about being overly optimistic on corn, which he said could lose its momentum on the same trade war and corrective weather.

Said Seery:

“Unless a trade agreement with China comes about, price (gains) are limited. I am advising farmer clients to take advantage of some of this year's $0.60 rally and offset some of their cash crop because once the nice weather comes back into town, prices could drop quickly.”

Investing.com’s daily technical outlook has a “Strong Buy” on July, the front-month contract in U.S. corn, pegging Level 3 resistance, the stiffest, at $4.05 per bushel. With the July contract hovering at just under $3.95, corn bulls stand to gain about 3% if the projection plays out. The last time corn traded above $4 was during the week to May 27, 2018.

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Seery said one of the main other factors for the spike in corn was the substantial short of around 330,000 contracts held by large managed funds just as the market was rising.

He added:

“Now, that is approximately down to about 250,000 contracts and it looks to me like a short squeeze has been created.”

Jack Scoville, grains analyst at the Price Futures Group in Chicago, agreed with Seery that were downside risks as well to the corn rally, as much as the potential for continued price hikes.

Said Scoville in a note issued on Tuesday:

“The crop progress is the worst since at least 1980. It has been too cold and wet for most producers to consider planting. Some producers have not even been able to do initial fieldwork to prepare the soils for planting, and soils in many cases are too cold for seeds to germinate properly.”

He said the reduced production will lead to lower-ending corn stocks that implied even higher prices at some point down the road.

“The magnitude of the rally will depend partly on production, but also on demand, and demand has been less than stellar. Demand could remain weaker as South American crops move into the world market. The funds remain very short in the futures market and are covering some of these positions now.”

But Dan Hueber of The Hueber Report consultancy in St. Charles, Illinois, foresaw little impedance in the path of corn bulls for now, citing an upside of as much as $4.27 for the July contract.

Said Hueber:

“By no means, there is nothing that would assure we will run that far. But for now, it would appear that the bears in the corn market who were uber-confident just a week ago are, or at least should be, headed for the exits.”

Corn prices were challenging the highs of the calendar year, he said, adding:

“Maybe it was the fact that Illinois, the second largest corn-producing state, is still just 24% planted compared with 89% on an average year.”

“Or possibly it was the weather outlook that promises more rains across this region right until the Memorial Day weekend, or even the fact that the Commitments of Traders report told us that managed spec funds had covered very little of their record short position.”

Hueber admitted that a sudden change in weather could change the fortunes of the punters in corn now.

“All that said … weather markets by nature are relatively short-lived, and it almost seems cruel to use the adage, but as they say, ‘you have to make hay when the sun is shining’.”

Written By: Investing.com