Seasonal Trends in Grain Markets: Spring’s Impact on Prices
By the time you read this, meteorological spring will have sprung. What do I mean by this? I tend to follow the meteorological seasons as it fits best with my study of the various grains markets. According to this calendar, meteorological winter ends on the last day of February, meaning meteorological spring begins on March 1, lasting through May 31.
Of course, there are other ways to mark the passage of seasons, most notably looking for when solstices are scheduled, but where’s the fun in that? We could also use Punxsutawney Phil’s prediction, as I talked about in Farmers Hot Line’s February issue, but the mere mention of the rodent weatherman’s name is enough to get my meteorology friends fired up, so I go with the meteorological calendar to tell me spring has arrived.
As mentioned in the opening, this ties in with my study of the various markets of the grains sector. The meteorological calendar fits with the end of the marketing year quarters (if one subscribes to the idea of marketing years, a subject for another day), with the close of February being the end of Q3 for the various wheat markets and the end of Q2 for corn and soybeans.
I want to start this discussion with soybeans, as this market comes with an asterisk. Yes, I know the standard marketing year runs from Sept. 1 through Aug. 31, but that doesn’t reflect reality. There are actually two marketing years for soybeans: The first is for the U.S. and runs from Sept. 1 through the end of February, the second is for Brazil and runs from March 1 through the end of August. I’ve long found it interesting that the United States Department of Agriculture, in all its glory and wisdom, sticks with the September to August marketing year for soybeans despite the fact the U.S. has become a secondary player in the global market thanks to detrimental trade policy (trade wars, tariffs, etc.). The reality is the marketing year should focus on Brazilian supply and demand, but again, that’s a subject for another day.
What do my seasonal studies show for the National Soybean Index? Based on both the five-year and 10-year seasonal studies, the index tends to rally from the first weekly close of October through the second weekly close of May, gaining an average of 17% (five-year) and 12% (10-year). Within this normal seasonal rally, we see that the index tends to stay firm through the spring quarter, adding between 1% (10-year index) and 4% (five-year). This is an interesting pattern given that U.S. export demand tends to all but disappear once the calendar page turns from February to March as Brazil becomes resupplied. This tells us domestic (U.S.) demand tries to pick up some of the slack during the spring.
It’s a similar story for the National Corn Index with my seasonal studies show a strong rally from the last weekly close of September through the second weekly close of May (five-year index) or second weekly close of June (10-year index). One of the key differences between corn and soybeans is the U.S. remains the key player in the former when it comes to production, usage and exports. (Again, though, this could change.) If we focus on the five-year pattern, we see the Index tends to gain 21% during its seasonal move before abruptly falling off a cliff during the summer and fall quarters. During the spring — March through May — the index tends to add 12% of its seasonal move. So far this marketing year, the index had gained 24% from its low weekly close of $3.71 during the third week of September through the high weekly close of $4.64 the second week of February.
I could talk about any of the three National Wheat Indexes, but this time around I’ll focus on soft red winter (SRW). During the course of wheat’s marketing year that runs from June 1 through May 31 (yes, including spring wheat, oddly enough), the SRW Index shows a seasonal uptrend from the last weekly close of August through the second weekly close of May (do you see the pattern throughout the grains sector, with high weekly closes around the second week of May?). The average gain is between 20% (five-year index) and 13% (10-year index), with the SRW Index adding as much as 23% from its late August price of $4.44 through its mid-February calculation of $5.46. If we just focus on the Q4, March through May, we see the index adds an average of as much as 7% (10-year) to 11% (five-year).
While seasonal analysis doesn’t tell us exactly how this quarter will play out, after all these are averages that act as guides rather than hard and fast rules, we do know Major League Baseball begins, confirming spring has arrived ... and isn’t that what’s really important?
