'Tis the Season
Teucrium | September 23, 2021
Corn and soybean prices typically put in their annual lows around the harvest season. Given that prices have largely followed the seasonal trend this year, peaking in the Spring, and moving lower over the summer, it is possible that prices could continue to follow the seasonal patterns and head higher through year-end.
The Seasonal View
Seasonal charts reveal repeated price patterns in certain markets. Agricultural markets are especially prone to seasonal patterns given that crop production depends on seasonal weather. While historical price patterns do not guarantee future results, knowledge of seasonal price trends may help investors pick better times to enter or exit their trades.
Average Front Month Corn Futures Prices over 20 and 30 Years
Past Performance Does Not Guarantee Future Results
Seasonal Chart provided by David Stendahl and the Signal Trading Group www.signaltradinggroup.com
You can see on the chart above, for example, that corn prices historically peak in late spring, and bottom in October. Note that both the 20- and 30-year price averages are directionally very similar (please see the appendix for a 20 – and 30-year seasonal price chart on soybeans).
This seasonal price pattern mirrors the growing season. Prices peak during the planting season, amid the height of uncertainty pertaining to the potential success of the crop being planted. Similarly, the seasonal price lows coincide with the significant supply boost resulting from a successful harvest.
Therefore, an investor with a bullish thesis for corn may do well to sit out the summer months and wait until the harvest before investing. Likewise, someone long corn and sitting on profits in the Springtime might consider pocketing some profits expecting prices to trend lower over the summer.
History Often Rhymes
We believe that by-and-large seasonal charts for corn and soybeans offer a general indication of where prices might be heading. However, the timing is never exact. As such it is possible that corn prices may have already put in their typical seasonal low in September versus October as the seasonal chart suggests.
As of this writing front-month corn futures prices are roughly 7% higher versus the intra-day low reached on September 10th. Likewise, front-month soybean futures are trading around 2% higher versus the recent low on September 9th. Perhaps, rather than repeating, history is only rhyming this time around.
Fundamental Price Support
Currently, both corn and soybean balance sheets are very tight relative to history. While the coming harvest is likely to provide a much-needed boost to corn and soybean supplies, we believe it will likely take one or two more growing seasons to restore inventories back to more robust levels.
For example, after accounting for this coming harvest the USDA is still forecasting stocks/use ratio[1] for corn of only 10%. For perspective, this is 60% lower versus the “pre-pandemic” high during the 2018-2019 crop year. The situation is more dire in the soybean market where the estimated stocks/use ratio has declined by more than 80% since the 2018-2019 crop year and now sits at only 4.2%.[2]
Sources: USDA and Teucrium
Given the historically tight supply/demand dynamics in the corn and soybean markets, we believe prices are likely to remain elevated relative to the last six years.
Considering the Downside
Both corn and soybean markets are volatile and there is the potential for prices to head lower. Keep in mind seasonal trends are not set in stone ant is possible for prices to trade contrary to the seasonal patterns and continue lower for the remainder of the year.
Also, keep in mind that prices reflect both supply and demand. Current supplies are “tight” only relative to demand. A significant reduction in demand would likely put downward pressure on prices.
Conversely, if current demand estimates hold then we believe it is entirely feasible for prices to advance from current levels. To be certain we believe there will come a point when corn and soybean prices head lower and trade closer to their respective costs of production. this view in-depth in our commentary titled “The Golden Grain Cycle,” published on July 20, 2021, and found here.
Conclusion
Corn and soybean prices have generally followed their seasonal trends this year. Both commodities put in their current calendar year highs in the Spring and have since trended lower. If prices continue to follow the seasonal patterns, we would suspect that the bottom of the recent downtrend could coincide with the harvest. When following seasonal patterns, it is good to keep in mind that the direction is more dependable than the timing. As such it is possible that the bottom of the current trend has already been put in. Only time will tell.
Teucrium’s ETFs may be held as a core component of a portfolio’s overall commodity exposure.
Options are available on CORN, and SOYB. Please contact your broker and/or financial advisor for more information.
APPENDIX:
Average Front Month Soybean Futures Prices over 20 and 30 Years
Past Performance Does Not Guarantee Future Result
Seasonal Chart provided by David Stendahl and the Signal Trading Group www.signaltradinggroup.com
[1] Stocks/Use Ratio: Ending Stocks (i.e. previous year’s surplus supply) divided by total usage
[2] Note the Teucrium CORN Fund is not designed to track spot corn futures, but rather a diversified benchmark reflecting the performance of the 2nd to expire, 3rd to expire, and December following the 3rd to expire corn futures contracts. Current fund holdings can be found on our website at www.teucrium.com/holdings/corn Analysis of front month futures prices is used here to illustrate the directional move for corn futures prices, and may not be reflective of the price performance of the CORN ETF.