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.
The bar chart above titled “Number of Annual Price Highs” illustrates the obvious: seasonal patterns for corn price highs are somewhat more difficult to recognize or predict.
Conclusion
Clearly, no one factor seems to be as predictable or as reliable for corn pricing as the autumn harvest seasonal price low. For traders seeking short or medium term opportunities, and for asset allocators looking to layer corn into a portfolio of commodity holdings, knowledge of seasonal price low patterns could prove quite beneficial. For those seeking sell signals or seasonal price high patterns, things are less clear, at least from a seasonal patterning perspective. One thing is certain: there are historical patterns in the corn markets that can potentially be advantageous to Investors and Investment Advisors, at least from the perspective of the calendar.
1 As reported per the USDA on the August 12, 2015 World Agriculture Supply and Demand Report.http://www.usda.gov/oce/commodity/wasde/latest.pdf
2 Analysis & corresponding charts were prepared by Teucrium Trading, LLC, using Bloomberg Professional, August 12, 2015. All supporting detail available upon request.
3 Analysis & corresponding charts were prepared by Teucrium Trading, LLC, using Bloomberg Professional, August 12, 2015. All supporting detail available upon request.
The views in this newsletter were those of Teucrium Trading, LLC as of October 1st, 2015, and may not reflect the views of Teucrium on the date the material is first published or any time thereafter. These views are intended to assist readers in understanding commodities and do not constitute investment advice. This should not be considered as an offer to sell or a solicitation of an offer to buy any securities mentioned herein.
Investing in a Fund subjects an investor to the risks of the applicable commodity market, which investment could result in substantial fluctuations in the price of Fund shares. Unlike mutual funds, the Funds generally will not distribute dividends to shareholders. The Sponsor has limited experience operating commodity pools; a commodity pool is defined as an enterprise in which several individuals contribute funds in order to trade futures or futures options collectively. Investors may choose to use a Fund as a vehicle to hedge against the risk of loss, and there are risks involved in hedging activities.Commodities and futures generally are volatile and are not suitable for all investors. The Funds are not mutual funds or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and are not subject to regulationthereunder.For a complete description of the risks associated with the Funds, please refer to the applicable prospectus.
Shares of the Funds are not FDIC insured, may lose value, and have no bank guarantee. Foreside Fund Services, LLC is the distributor for theTeucriumFunds. The Teucrium Funds have a patent on the methodology employed by the Funds.
A copy of the prospectus for each Teucrium Fund may be accessed at the links below:
CANE: http://www.teucriumcanefund.com/pdfs/cane-prospectus.pdf
CORN: http://www.teucriumcornfund.com/pdfs/corn-prospectus.pdf
SOYB: http://www.teucriumsoybfund.com/pdfs/soyb-prospectus.pdf
TAGS: http://www.teucriumtagsfund.com/pdfs/tags-prospectus.pdf
WEAT: http://www.teucriumweatfund.com/pdfs/weat-prospectus.pdf
Additional disclosure: I am long other agricultural ETP products and agriculturally related securities, but I have specifically disclosed only those holdings that include direct exposure to corn futures interests.