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Seasonal charts show the way

Agriculture.com Staff 05/01/2009 @ 11:50am

It is gratifying to see strength in the soybean and corn markets when the long term charts show it to be a good time to be making sales. It is always better to have strength to sell in to. Marketing is easier when the markets perform as expected. Seasonal analysis shows why selling grain in April and May is usually a good thing to do.

On the long term charts that go back 29 years, the spring high in corn futures is April 6. From that date until the harvest low on September 16, the price has dropped 22 times and gone up seven times. The average drop was 20 cents. That average includes years when the price went up and most years when the price started lower than it is today.

Comparable data on soybeans show the high to be May 11. From then until the seasonal low on October 5, the prices dropped 19 times and went up 10 times. The average drop was 23 cents. As with corn, these numbers include years when the price went up, not down.

The statistics show a clear advantage to forward pricing as opposed to selling at harvest. The numbers indicate better odds for forward pricing corn than soybeans. These odds will vary depending on the selected years and the starting and ending times being compared. Sometimes a big price move will start earlier or later for one crop than for the other.

Farmers wanting to utilize grain bins can use the futures market for forward pricing, then at harvest roll the sales from November or December futures into contracts expiring the following July. The charts of July futures prices do not show a big price increase from December until June. Most of the cash price gain during that period is from basis improvement. For instance, July corn futures today are within the range of prices in the middle of last November.

Gains in the cash price from storage result from the improvement in basis and from the carry between December and July futures. For the 2008 crop, corn on November 20 was $3.36 compared to $3.69 today at my local elevator. That spread of 33 cents occurred with the July futures at the exact same price each time. Clearly selling cash and buying futures was a losing strategy. Storing cash and hedging in futures resulted in a higher final price. Profits or losses would be determined by storage and interest costs.

Seasonal charts show that it is time to sell grain. Whether the price goes up or down next week will depend on short term fundamentals and trader psychology. Planting delays do not normally determine the long term direction in grain prices. Last year was an exception. Even then, the price gains from bad weather did not last through the summer.

It is gratifying to see strength in the soybean and corn markets when the long term charts show it to be a good time to be making sales. It is always better to have strength to sell in to. Marketing is easier when the markets perform as expected. Seasonal analysis shows why selling grain in April and May is usually a good thing to do.

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