Equip yourself to take advantage of historical seasonality
We’re going to let you in on a little secret. It’s never a 100% sure thing, but in general, grain futures prices tend to be higher at certain times of the year. That’s a real bombshell, right?
It’s as simple as looking back at futures markets through the years, and although it may be the worst-kept secret in grain marketing, we’ve seen shockingly few marketers take full advantage of this trend, known as historical seasonality.
What is historical seasonality?
We typically see this happening during the spring pricing window. This is when, historically, prices are at their highest. So why is that? Well, this is when uncertainty about what the growing season will bring tends to be at its peak. You’re heading into planting and preparation, but you don’t know what the crop looks like yet. Yield predictions are uncertain, and any type of weather story can largely impact not only the crop but also the price of the crop. It is a very volatile time and tends to follow a similar pattern of volatile highs and lows every year.
This year markets have been extremely volatile, and as we approach the growing season futures prices could go to either extreme. We are coming into the season with short stocks and any kind of crop issue can make market prices go through the roof. However, we’re also coming out of La Niña, we have more acres, good crops, and a poor economy that could cause market prices well below cost of production and break-even levels. Due to this uncertainty, it’s extremely important to understand seasonality in the market so you can take advantage of it in your marketing plan.
Recognizing historical trends is the first step. The 10- and 20-year index in the chart shows clearly that the March through June timeframe has typically featured some of the highest futures prices of the year. But as you can also see in the chart, even as prices trend upward there are many dips and valleys along the way. This makes it extremely difficult to know when exactly to pull the trigger in order to capture the market high.
So what is a marketer to do?
When you identify historical seasonality, you can better plan to take advantage of it. And there aren’t too many of us who have time to watch the market while we’re in the field planting or prepping to plant. Find a way to participate in the market for an extended length of time in order to ride out the dips and capture better highs.
There is a lot at stake this year as we look at global recession and global demand. Weather patterns are changing, and we are due for an average crop after three short crops in a row. This means there is risk that prices could be measurably lower, making this THE year to take advantage of market trends.
If this concept is appealing but you’re uncertain what to do next, Cargill’s experts have put together historical pricing charts for corn and soybeans to highlight how and why you should take advantage of this volatile time in the market. Contact your Cargill rep for more information.