Making Sales Based on Seasonal Price Trends
Seasonal price trends exist for nearly every marketed commodity, including grain. Seasonal trends aren’t always reliable – as the last few years have pointed out.
Still, seasonal price trends can help producers beat the law of averages.
Betsy Jensen, ag commodity instructor with Northland Community and Technical College, says seasonals won’t work if weather problems during the growing season cut production expectations. In most years, however,
odds are that price trends will follow seasonal highs and lows.
In wheat, a 15-cent price decline can generally be expected from April 30 to July 31, she says (see seasonal charts). In corn, the seasonal price trend indicates there is usually a 13-cent drop in the price
from April 30 to October 31, and a 35-cent decline in soybeans from April 30 to September 30.
Seasonals do not reflect prices in distant futures month, or carrying charge. The carrying charge (often referred to simply as the “carry” or “price spread”) is what prices are projected to be in distant futures
months compared to the nearby months, i.e., Dec compared to July.
The carry can offer producers an opportunity to lock in a higher price for a distant month using price strategies such as put options. The carry can also amplify a seasonal price change in the futures
price. For example, if December wheat is already 25 cents higher than July wheat, the likely price drop in wheat becomes 40 cents when combined with the 15-cent seasonal decline.
“Seasonals are easiest to understand in a flat market, such as wheat and corn today,” Jensen says. In a flat market, there is little difference in price or the carry between nearby months and distant futures
months (ie, if the May futures price is $4.20 and Dec is $4.18).
“There are always exceptions when seasonal selling won’t work, such as wheat in 2002 and soybeans in 2003,” Jensen says. “Nevertheless, you can’t ignore seasonals. Use them as a benchmark for sales. Make
a point to move at least some grain at the seasonal high. Seasonal price trends and the exceptions to those trends help emphasize the importance of spreading out sales over many months. Seasonal price
highs may not always offer you the best gain, but over the long run, remember that farm profits per bushel are usually measured in nickels and dimes, not in dollars.”