Seasonal Price Patterns and how they relate to the Northern Hemisphere’s Autumn Corn Harvest
The world’s two largest corn producing nations, the United States and China1, lie in the Northern Hemisphere. Corn farmers in these two substantial corn producing nations are forced by the cosmos and the changing of the seasons into harvesting virtually all of their corn in the final four months of the calendar year. This annual barrage of supply, which actually occurs over a period of approximately only 12 weeks from mid-September into mid-December, brings the majority of the entire year’s worth of global corn supplies to market.
This seasonal influx of supply is why harvest time in the Northern Hemisphere is watched closely by investors to gauge the potential balance of supply and demand for corn in the crop year. Because the autumnal corn harvest is an immutable fact of nature, cyclical price lows are often established during these critical harvest months. Analysis of historical data illustrates thatthis seasonal corn harvest pattern can potentially provide opportunities for investors.
The chart below, provided by our friend David Stendahl of Signal Trading Group, illustrates the long term seasonal price pattern of spot continuation corn futures prices for the past 20 and 30 years. One can see that during the Northern Hemisphere’s corn harvest, which is generally in full swing by the start of the fourth calendar quarter, there has historically been a clear seasonal pattern in the first nearby corn futures markets.
20/30 Year Seasonal: CBOT Corn Futures Contract*
Data from September 25, 1985 to September 24, 2015
Source: Signal Trading Group (signaltradinggroup.com). Used with permission. Past performance is not indicative of future results.
*About the Data: The seasonal chart above provides a historic reference of past trends for the corn market. Average prices over the 20 and 30 year periods are reflective of daily 1st month (spot month) contract data from September 25, 1985 to September 24, 2015.
The Corn Harvest Seasonal
Statistically, the absolute price for corn traded for delivery in the following crop year – as measured by the corn futures contract expiring in December of the following calendar year – has most often bottomed in the last half of the calendar year. More specifically, historical analysis of corn’s price history shows us that at this particular time of year – harvest time in the Northern hemisphere – corn prices for delivery representingnext year’s harvest, i.e., prices for delivery at least one year into the future, have typically bottomed in the last four months of the prior calendar year.2
A closer look at the seasonal price patterns of December corn futures, in particular the December contract representing next year’s corn crop expectations, which is the “anchor” contract in the Benchmark Index of theTeucrium Corn Fund (NYSE/Arca ticker: “CORN”), displays seasonal characteristics that can potentially benefit both opportunistic short-term traders as well as long-term buy-and-hold investors.
Ten of the last twenty-six December corn futures price lows in the calendar year prior to expiry have occurred in the fourth quarter; if one counts two lows set in calendar September, a full 46% of corn’s last 26 seasonal price lows have been set in the last one-third of the calendar year. The calendar month of December has produced the greatest number of price bottoms (with 6) in the past 26 years.
The bar chart below titled “Number of Annual Price Lows” illustrates the 26 year history (1989-2014), grouped by calendar quarters, of the annual price lows established by the CBOT December corn futures contract for the following crop year. The chart illustrates the power of the harvest seasonality and the opportunity it can potentially bring to investors and asset allocators looking to add corn to their investment portfolios.
Number of Annual Price Lows for the CBOT December Corn Futures Contract*
Data from January 1, 1986 to December 31, 2014
Past performance is not indicative of future results
Source: Analysis & corresponding charts were prepared by TeucriumTrading, LLC, using Bloomberg Professional, August 10th, 2015
*About the Data: The data reflects the total number of calendar year price lows set over a 26 year period, by quarter, for the corn futures contract expiring in December of the following calendar year, i.e. for the December corn futures contract expiring in 2015, we analyze the low price from 2014.
Number of Annual Price Highs for the CBOT December Corn Futures Contract*
Data from January 1, 1986 to December 31, 2014
Past performance is not indicative of future results
Source: Analysis & corresponding charts were prepared by TeucriumTrading, LLC, using Bloomberg Professional, August 10th, 2015
*About the Data: The data reflects the total number of calendar year price highs set over a 26 year period, by quarter, for the corn futures contract expiring in December of the following calendar year, i.e. for the December corn futures contract expiring in 2015, we analyze the high price from 2014.
Other Seasonal Considerations – Midsummer Weather Uncertainty
It is worth noting that the midsummer can also be a pivotal time for corn prices, because price activity during this time is driven primarily by weather patterns, which are highly unpredictable. In fact, 9 of the last 26 price lows have occurred in only two calendar months – 4 in June and 5 in July. However, the unpredictability of summertime weather has also resulted in 7 of the last 26 highs occurring in the very same two months of June and July; June with 3 and July with 4, thus creating a statistical offset to any discernable seasonal summertime pattern.3
Lack of Non-Harvest Price Seasonality
Statistically, there is a lack of seasonality across the calendar when attempting to determine a seasonal corn price high. This has to do with many factors fundamental to farming, such as spring planting weather, early summer pollination conditions, and heat and moisture levels in late summer.