Posted on April, 24, 2024 at 08:59 am
There is a seasonality to just about everything we do. This often comes at the expense of our sanity when the busy planting and harvest seasons keep us from a good night’s rest.
When we get busy at harvest, so does everyone else. This usually leads to a general price decline as a flush of just-harvested crops comes into the market. Intuitively, this makes sense given general supply and demand dynamics of any market.
So if harvest is generally the low price, when is the high?
First, we must recognize that this is flawed thinking. Selling at the highest price in a year is impossible.
OK, sure, it’s not impossible, but it’s so improbable that such minute chances certainly make it feel impossible.
Instead of seeking the highest possible prices, we need to shift our thinking to periods or seasonalities of market trends.
The simple chart on this page displays the general monthly price trend in the corn market from January to December of one year.
This is often presented as an index, with the price on Jan. 1 as the baseline value of 1 or 100. As the year progresses, we see that the price index increases until it reaches a peak in July.
From early spring to mid-summer the market begins to refocus its attention toward the production of the current year’s crop and slightly away from the concerns of last year.
In practice, markets trade based on information presented in the planting intentions, planting progress, and crop condition reports from USDA and private trade groups looking to predict the year’s production, and therefore the price at harvest.
In this way, the “bullish” (price-supportive) and typical news of planting delays, weather issues and crop condition reports drive prices higher during this period.
This period is fraught with uncertainty, whereby price volatility (the degree of price change over a period of time) is highest during this time as market participants evaluate and reevaluate their positions based on the most current information.
Taking a step back, think about your own farm. We recognize that the crop’s yield is generally made after about the second week in August.
Other factors can change this, but for the most part we can gauge a good crop from a bad crop at this time.
The market can, too. As the crop condition becomes more clear to the market, traders begin preparing for the harvest season. It is around this time that the price of corn begins to fall back lower, back to — and sometimes lower — than its starting point.
Though the chart presented appears overly simplistic, the truth remains that this seasonal price trend is robust. One can find myriad data for the last five, 10 and 15 years illustrating this exact pattern.
Putting some numbers to it, from May 1 to Oct. 1, the price of corn falls by more than 30 cents 74% of the time. Would you bet on a coin flip weighted 75% against you?
Taking advantage of seasonal price trends with preharvest marketing tools like forward contracts is a key to success in marketing grain. Though it’s attractive to try and wait for the highest highs, it’s often a losing strategy.
Remember, it’s hard to go broke taking a profit.
Source: Lancaster Farming