Seasonality is an important concept for those looking to trade Agricultural products. The regular patterns of supply and demand displayed by these markets at specific times of the year should be key considerations in making trading decisions.
It is important to understand these distinctions because of their impact on supply and demand and the subsequent price differences that occur throughout a typical crop year.
Old Crop versus New Crop
The standardized trading months for Corn, Soybean and Wheat futures reflect the seasonal patterns for planting, harvesting and marketing the underlying crop. These trading months are also indicative of the source of supply at any particular time.
During the planting months, spring for corn and soybeans and fall for winter wheat, the source of grain that is available for sale or purchase by end users is from the crops that were harvested during the previous harvest season—the old crop.
On the other hand, during the harvest months, typically July for winter wheat and November and December for corn and soybeans, the newly harvested crop comes to market and supply is higher—hence, the new crop.
Each grain commodity has one new crop futures delivery month and all others are old crop months.
Now you might think intuitively that Grain futures trading further out in time would likely be priced higher than Grain trading in the current, or nearby, futures delivery months because of factors such as carrying costs, storage, etc., which would cause higher prices in those deferred months. However, when you take a closer look at the grain markets during the old crop and new crop months, you will understand why that is not necessarily always the case.
During the old crop months, when supply is typically lower, grain tends to be priced higher than the farther out new-crop trading months.
When a new crop is harvested, there is once again a higher level of supply. This is why many of the grain markets tend to reflect their lowest seasonal prices during the new crop trading month.
Wheat markets have a tendency to decline between spring and the July harvest, then begin to rise from these harvest lows into fall and winter.
With soybeans, harvest begins in September, and continues through October into mid-November. Soybeans tend to follow a pattern where prices begin to decline in the July-August time frame, continuing through “February break,” before reaching their seasonal highs in the summer. Soybean meal and oil have the same seasonal tendencies as soybeans.
With corn, the most pronounced seasonal trend is the tendency for prices to be near their highest level around July because of the uncertainty around new crop production, then to decline from mid-summer into the harvest season.
Keep in mind that the seasonal patterns and pricing tendencies described here can be affected by other fundamentals, such as weather and production in other grain importing or exporting countries. But having a general understanding of the seasonality in grain markets and the potential impact on grain prices is important to anyone planning a Grains or Oilseeds futures trading strategy.
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