Why Did the Short-Covering Rally Drive Corn Prices?


Feb. 3 2016, Updated 8:57 a.m. ET

Corn prices rose

Corn futures on the CBOT (Chicago Board of Trade), for March delivery, rose by 0.34% and settled at $3.72 per bushel on February 2, 2016. Corn prices rose due to the technical short-covering rally. The Teucrium Corn Fund (CORN) followed the CBOT. It rose by 0.41% on February 2, 2016.

Technical buying during trading hours on February 2, 2016, surprised grain market traders. The outside market performance was negative. The lower Chinese manufacturing purchasing managers’ index weighed on the market performance as a whole. However, the corn market showed a remarkable volume and open interest increase despite receiving negative macroeconomic cues. Analysts think that short covering before the U.S. Department of Agriculture’s monthly World Agriculture Supply and Demand Estimation Report drove market speculators to reduce the critical data release event risk. Speculation of short covering and risk off sentiment could continue during the week and support corn prices.

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The weather conditions in Argentina met the forecast. Temperatures continued to rise gradually amid no or fewer variations. The adverse weather conditions continue to reduce the top soil moisture. It’s stressing the corn plants. About 30%–40% of the corn crop is in the crucial development stage in the major Argentine corn belt. Satisfactory moisture conditions ensure that the plants are healthy. When there’s enough moisture, it leads to a higher crop output. In contrast, stress in satisfying moisture requirements could hurt plant development. It would have a negative impact on the production. The speculation of unfavorable production in Argentina supported US corn prices on February 2, 2016.

Stock discussion

The rise in corn prices supports corn trading and producing companies. It supports the inventory value and increases the profitability. Share prices of CHS (CHSCP) rose by 0.06% with the rise in corn prices on February 2, 2016. However, Archer Daniels Midland (ADM), Bunge (BG), and ConAgra Foods (CAG) fell by 8.7%, 4.6%, and 2.6% on February 2, 2016. The PowerShares DB Agriculture Fund (DBA) fell by 0.15% on February 2, 2016, with the rise in corn prices.


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