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335411

Seasonal odds project higher prices

I have been studying seasonal price patterns for four decades. The patterns these days are similar to when I put my first studies together in the late 1970s. However, the timing of the highs and lows has changed in the past 10 years. 

Let’s review what has happened with corn. In the 1970s and through the early 1980s, the normal pattern for corn was for prices to put in a major high in late June or early July and then trend down to the harvest low in October. Some of this was because of the widespread use of the nine month CCC loan on corn that forced a lot of corn on the market in September and October. The yearly price range was often $1.20 to $1.50 per bushel.

In the past decade, the highs in the corn market have come in April or May, and the lows often come at the end of August or early September. This year, it appears that corn put in a major low in late July. From the seasonal low, prices will often rally for six to nine months and then turn lower for three to five months. The pattern change is that we often get earlier highs (like right during planting the past two years) and earlier lows, with the lows coming in right ahead of harvest. 

29513_corn

This monthly CBOT corn chart shows the major high at over $8.40 in 2012. That was followed by the long bear market until prices bottomed in March 2016 and again in March 2020 at $3.00 during the COVID-19 scare. From that low, futures prices rallied to the high in May 2021 at just over $7.50 per bushel. The chart shows long-term resistance at the May 2022 high and major support at the July 2022 low at $5.61.

For soybeans, the old seasonal pattern was for a rally to the high in June and then prices would turn sharply lower into the October low. Historic USDA data shows that farmers would often sell 45% of their soybean crop in October. The overwhelming supply would create a wide cash basis and often a low in the soybean futures market. The yearly trading range was usually about $1.80 to $2.50 per bushel. 

The new soybean seasonal pattern that has evolved over the past 10 years shows a double-top pattern. My new seasonal odds chart shows a high in April or May, a low in August or September, a secondary high in November or December, and another low in February or March. The soybean weekly chart often looks like a big “M” on my long-term chart.

29513_soybean

This monthly CBOT soybean chart shows the major high in 2012 at just below $18.00 per bushel. From that high futures price, prices went down to the major low at $8.80 in January of 2016 and then the major low at just above $8.00 in late 2018. Prices soared in 2022 again stopping just below $18.00. Resistance is at $17.80 to $18.00 with support at $13.40.

When I see changes like this, I want to understand why. What caused these changes to the seasonal patterns for corn and soybeans? 

Here are some reasons.

  1. The grain market is even more global than 20 to 40 years ago. Brazil now produces more soybeans than the United States. I watch weather patterns from October through February in all of South America. 
  2. More fund and algorithm traders exist. In the 1970s and early 1980s, it was a battle between grain companies and retail traders. Now more and more it is a battle between funds and grain companies — and the funds have more money. 
  3. Farmers are doing a better job with their marketing. Farmers have learned a lot about marketing, and they know to avoid any sales during the harvest glut in September and October. It also helps that farmers have built a lot of storage. Many farmers can hold onto grain at least 30 to 60 days after harvest and wait for postharvest basis appreciation.

How should these changes in the seasonal price patterns impact your marketing plans next year? 

First, be ready for early highs next year. If the corn and soybean markets put in major lows in late July, then a six-to-nine-month rally projects a potential high between January and March. 

Second, with the increasing amount of fund and algorithm trading, plan to make more and smaller incremental sales. I used to make two or three new-crop sales and two or three cash sales. Now I can get a better average by making three to six new-crop sales and eight to 10 cash sales. With the yearly trading range for corn now between $2.50 and $3.00 per bushel, and the trading range for soybeans between $3.00 and $6.00 per bushel, you need to have a disciplined but flexible marketing plan. 

As you make your Thanksgiving holiday plans, be sure to include your marketing plans — be prepared to make a sale if there is a Thanksgiving rally.

Note: The risk of loss in trading futures and/ or options is substantial, and each investor and/or trader must consider whether this is a suitable investment. Past performance — whether actual or indicated by simulated historical tests of strategies — is not indicative of future results. Trading advice reflects good-faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice given will result in profitable trades.

Al Kluis

Commodity Trader Al Kluis has been trading grain futures since 1974. Sign up for a free trial to his daily morning email and weekly “Kluis Report” by going to kluiscommodities.com.

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