Every year, the changing of the seasons has a profound impact on a broad spectrum of futures markets. For ag products, the planting, harvesting, and marketing months create a multitude of pricing tendencies. Within the ever-shifting ag environment, there are a few grain trading tips that have proven historically useful for farmers.
Let’s take a look at the concept of seasonality and how it impacts ag futures.
Pay Attention to Seasonality
At the crux of any commodity’s value is the relationship between supply and demand. Simply put, if demand outpaces supply, prices rise; if supply exceeds demand, prices fall. Seasonality refers to evolving supply/demand levels and the subsequent commodity pricing trends of a certain month(s). A best practice for producers is to maintain awareness of the effects of seasonality on commodity markets, specifically as it pertains to grain trading.
A well-known example of commodity seasonality deals with the pricing of crude oil. Essentially, prices of North Sea Brent (Brent) and West Texas Intermediate (WTI) crude oil rise during summertime in the Northern Hemisphere (June-August). The increase in price is caused by a spike in the demand for refined fuels, stemming from travel and industrial activity. Conversely, wintertime (December-February) sees lower prices because reduced consumption decreases the demand for refined fuels. Although the ag futures markets are very different from Brent and WTI, there are similar seasonal tendencies to be found.
It is important to understand that countless fundamentals are capable of impacting supply and demand levels and, in turn, pricing. Weather, global economic cycle, and outliers such as the 2020 coronavirus pandemic can quickly send any commodity market into flux. Nonetheless, seasonality is among the most valued concepts for farmers and traders because it provides them a firmer grip on how commodity futures markets tend to behave.
Prepare for Harvest
For farmers, every year brings a new cycle of “out with the old and in with the new.” Old crops are marketed, new crops are planted, and existing crops are harvested. As the cycle unfolds, new seasonal pricing tendencies are created. Depending on whether you plant corn, soybeans, or wheat, these trends may vary greatly.
Although grain trading strategies based on concepts such as seasonality aren’t gospel, they do give market participants a place to start. Here are a few historically sound ag futures pricing trends to keep in mind:
| Product | Harvest | Spring/Summer | Fall/Winter |
|---|---|---|---|
| Corn | September-December | Rising | Declining |
| Soybeans | September-November | Rising | Declining |
| Wheat | July-August | Declining | Rising |
The key element driving the trends above is the relationship between old crop supplies and new crop supplies. During the planting and growing seasons, the old crop is the driver of supply and is being marketed to the public; given normal demand levels, dwindling old crop stocks lead to higher prices. Upon harvest, new supplies become available and hit the open market, which frequently leads to lower prices because depleted supplies are restored by the new crop.
Although the old crop/new crop dynamic does not always hold true for grain trading, it is historically recognized by the Chicago Mercantile Exchange (CME). In addition to this phenomenon, astute farmers also monitor carryout levels, per acre yields, and currency inflation to inform their trading in commodity futures markets
Looking for More Grain Trading Tips?
If you’re an ag producer searching for more grain trading tips to add to your toolbox, one great resource is your broker. An experienced broker has the knowledge and insight to recommend season-specific futures strategies in a timely fashion. No matter whether you want to lock in profits or augment your operation’s bottom line, a good futures broker can help.
Of course, the best trader tips come from the best brokers. With more than two decades in the futures industry, the team at Daniels Trading knows ags. From trading ideas to management advice, we’ll help you build a robust, actionable marketing plan that is tailored to your unique resources and goals.
