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Seasonal signals panning out this year - Roy Smith
I keep a record of futures prices for corn and soybeans in a format that lets me graph the movement of prices over a number of years. For long-term analysis I use an average of the last 30 years to determine seasonal events that are likely to happen this year. I record May futures prices for soybeans. For corn, I use March futures prices. This gives me a picture of any given set of years between the time beginning around planting and continuing into the spring of the following year. I have been keeping these graphs since the early 1980s.
The seasonal events have remained remarkably consistent in the nearly 30 years I have been keeping these records. Seasonal events in the soybean market have evolved somewhat since the advent of the South American competition. In the 1980s, storage of soybeans from harvest into the following spring was seldom very profitable.
In recent years profit from storage has improved. The John Deere-low that once marked the beginning of the spring rally is now much less prominent than it was in early years.
The general pattern of price action looks a lot like it did in those early years. Of course, prices are much higher now than they were back then.
The seasonal events remain a good guide for making sales. Seldom does price action follow the exact pattern shown on the long-term graphs. However, occasionally a change in market direction takes place on the exact day anticipated. When it does, I consider that a stroke of luck more than the genius of my analytical methods.
That said, it appears as of the close of trading today we might be experiencing one of those rare occasions when a seasonal event happens on the exact day anticipated. The 30-year chart of May soybean futures shows the high for the spring rally to be either April 22 or May 9. For selling new-crop soybeans, the preferred date is May 9.
When trading my speculative account, I use either of these dates depending on price action a few days prior to the anticipated date. This year my decision was to make the trades Thursday when I had a small profit on the last long trade.
Knowing that there would be an important report released at 11 a.m. today made me a little nervous about taking a position on the close the previous day. Nonetheless, I have long since learned to not second-guess the seasonal price signals. The numbers put out by the government appeared to me to be neutral. However, given the fact that both grains had experienced a minor retracement of the long move down, it would probably have taken a dramatically bullish report to result in a rally on Friday (today).
Trade reaction to the report was negative. The lower prices following the report are probably as much psychological as fundamental. While futures traded lower, historically good basis on both soybeans and corn indicates that end users need the grain.
Negative carry also indicates that there is concern about having adequate supplies to continue through harvest. Late planting and temperatures cooler than normal will cause concern that there might not be early harvested crops available to fill the gap in late summer.
I am happy that my seasonal price trends appear to have been accurate this time around. I would have been happier if the charts would have been wrong and prices would have shot higher today. That did not happen.
I am also glad that I had the self-discipline to take a position that I wish would have been unprofitable. Seasonal triggers frequently look wrong the day they are implemented. I hope that sometime during the coming summer there is another event that will offer the opportunity to lock in some higher prices for new crop sales. If not, we had our chance!