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Traders say 'seasonal' market signals are unreliable

Agriculture.com Staff 07/17/2008 @ 10:40am

Farmers looking toward making marketing decisions off seasonal indicators, i.e., what the market normally does at any given time of the year, may want to rethink that philosophy for this year, CBOT traders say.

For instance, last year, the Dec '07 corn futures contract set a low on July 23 at $3.24 ½ per bushel.

Because of added institutional investing in agricultural commodities, traders are leery of relying on seasonals, looking more toward technical signals.

Jason Ward, Northstar Commodity Investment Co., says he hasn't trusted seasonals this year. "I used to look at them pretty religiously but I have not in the past year. I have become way more of a technical trader with the added fund participation as that is their method of trading," Ward says.

Regarding whether a farmer should market some crop now, Ward says it depends on if you think the frost will hit early.

"If the frost is delayed two weeks, we should get this corn crop to maturity and have average yields, which would take prices lower than $6.70/bushel. My biggest concern right now is how far behind normal this crop is, so we certainly can't afford to have a season-ending frost in mid-September," Ward says.

Matt Pierce, Futures International, LLC, says macro-issues make it difficult to trust seasonal market indicators right now.

"The big banking situation is going to affect the money flow into our markets here,” Pierce says. "If the big banks pull back their wings on handing out credit, the money that has been inflating our markets will be pulled out."

On the flip side, if the big banks are solidified, they will have free reign to sink more money into our markets versus equities, due to the relative price value of ag commodities, Pierce says.

With a forecast calling for a high-ridge weather pattern setting in over the Midwest next week, adding fresh premium to the corn/soybean markets, Pierce says there is even more reason not to follow seasonal patterns for this time of the year.

"I think people are going to get through the weekend, get a little closer to the date of the expected heat. If on Monday we are confirming this heat dome, you should see this market pop," Pierce says.

Selling old crop cash on this dip is not recommended, Pierce says. "I would wait to see if this high-ridge weather sets in and wait for a heat value in late July, early August."

Joe Bedore, FC Stone's CBOT floor manager says seasonal market indicators are not reliable anymore.

"These markets have changed so much in the past six months, I don't believe in the seasonals anymore. You may want to believe in the harvest seasonal marketing pattern that shows lower price trends, but not in other ones," Bedore says.

Farmers looking toward making marketing decisions off seasonal indicators, i.e., what the market normally does at any given time of the year, may want to rethink that philosophy for this year, CBOT traders say.

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