Corn prices hit the overbought territory ahead of the WASDE report

on Jan 11, 2021
Updated: Jun 1, 2022
  • Corn prices are in the overbought territory; an aspect that could result in a pull back.
  • The commodity's price has risen by about 0.42% as investors expect a bullish WASDE report on Tuesday.
  • Dry weather in South American has heightened concerns over supply as the demand in China increased.

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Corn prices closed last week at a high of about 0.42%. On Friday, corn futures were trading at $496.08. This week, the market is awaiting the WASDE report scheduled for release on Tuesday. Furthermore, the prices will be reacting to the ongoing concerns over the commodity’s supply. The harsh weather conditions in South America have impacted corn output. On the other hand, China’s demand for the grain has risen as its hog herd continues to increase.

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Oncoming WASDE report

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Investors whose interest is to invest in commodities have their eyes on January’s WASDE report. The US Department of Agriculture is scheduled to release the report on 12th January at 1700 GMT. In December 2020’s release, the agency reduced its estimates for foreign corn output due to decreased production in Argentina.

Argentina and Brazil, two of the top corn-producing countries in the world, have been experiencing dry weather. Meteorologists forecast that the harsh conditions will continue in the short-term. Last week, southern Brazil received lower-than-normal rainfall; a phenomenon that is likely linger on far into the next month. However, the precipitation is ill-timed since harvesting has already began and the planting of Safrinha (the second crop) is underway.

Notably, eastern Brazil has recorded higher-than-normal rainfall. In a span of 30 years, Brazil’s Rio Grande do Sul is experiencing the 4th driest first week of January. For Santa Fe in Argentina, it is the 3rd driest in a similar span.

From late January, southern Brazil is set to receive increased rainfall. However, the resultant delays in planting and harvesting are likely to push corn prices higher. In eastern Argentina, experts expect prolonged drought.

This comes as the Argentinian government is yet to confirm if it will lift its ban on corn exports. On 30th December, the country’s ministry of agriculture indicated that it would suspend exports of the commodity till the end of February. The move was meant to secure domestic supplies.

At the same time, demand for corn is set to rise as China’s hog herd increases. In the last WASDE report, USDA raised its estimates for Chinese imports. Investors are keen on the agency’s estimates on supply and demand; and how corn prices will react to these market forces.

Corn prices technical outlook

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On the daily chart, corn prices have been finding resistance around the $496 level for close to a week. This resistance level is the highest that the commodity has reached since May 2014. Notably, the prices are trading above the 20-day and 50-day exponential moving averages. From this perspective, the commodity is likely to continue with the uptrend.

However, I suspect that the prices will pull back in the short-term before getting back up. To begin with, the RSI is at 87.90. This is a strong sign that the corn futures are currently overbought. As such, investors are likely to take profit; an aspect that will result in the price declining.  

Besides, a hanging man candlestick formed on Thursday. While the pattern’s confirmation on the next day was not as clear, the closing price was slightly lower than that of the previous day. With this in mind, corn prices will probably start this week with a decline before the market forces fan the upward momentum. For novice and experienced traders alike, trading courses will give you a better understanding of the apt technical analysis strategies.

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Corn Agriculture Commodity South America