Seasonal Wisdom is Still Valid
By Linda H. Smith
10/9/2009
It is conventional wisdom that significantly better prices can be captured by using futures hedges or put options early in the growing season. In fact, through the 1980s and prior to Freedom to Farm, a risk premium was present in all but three of 15 normal crop years studied by Robert Wisner, Iowa State University Extension economist. December futures averaged 31¢/bu. more during planting than in October.
Neither 1996’s Freedom to Farm nor billions of dollars of speculative fund money has changed that. In any timespan, the spring high–fall low pattern still rules (see chart).
“The most pronounced seasonal trend is the price decline from midsummer into harvest,” says Jim Wyckoff, a futures market consultant. Prices usually rise after harvest, but the “February break” is a well-known phenomenon, he adds.
However, keep in mind that these averaged charts hide a lot of variation, cautions Chad Hart, a colleague of Wisner at Iowa State. For October, the historical range (1980–2008) has been from 30% below to 14% above the year’s average price; the October average is 6% below.
In fact, at the end of August, Kurt Koester of AgriSource in West Des Moines commented: “Corn is tracking its five-year seasonal very closely, while soybeans are definitely going their own way right now.”
Deliveries Pressure Prices
About a third of the corn crop and 40% of soybeans are sold during September–November and another 24% in December and January (see chart). That doesn’t necessarily mean fall delivery is a mistake, however, says Jim Kendrick, retired University of Nebraska Extension economist. Hedging or options profits may be added to the cash price received—USDA data do not capture that component. In years when loan deficiency payments are in play, they are also typically greatest at harvest and would be added to price received.
“Keep in mind that although old-crop cash prices typically improve from fall levels, storage is not free,” Kendrick adds. “You need to subtract actual expenses and opportunity costs associated with delaying the time when you receive your payment.”
Top Producer, October 2009
