Seasonal Trades In Grains

2018-07-03 | Simpler Trading Team

There have been volumes of work centered around the theory of seasonal trades published. This is one I have used for years and have found it to be quite useful.

Around the July 4th Holiday week each year  the grain charts will frequently show a major move in one direction or the other.

The basis for these moves revolve around the maturity properties of corn and soybeans. Of course, weather is the biggest factor influencing grain production. Pollination is a critical stage of corn production – this is when the pollen emerges and falls onto the freshly sprouted silks on a new ear of corn. The tiny pollen grains must fall upon a sufficiently moist silk and follow the hollow structure down to its own kernel of corn to complete the fertilization process. If the weather is hot and dry at the time of this event some, if not all, of the silks will dry up before this process is complete. Since there is a silk for each and every kernel of corn pollination failure at this stage can significantly reduce the number of kernels per ear thus negatively effecting the eventual yield of the crop.

Additionally the post pollination process causes photosynthetic activity to kick into high gear as the corn plant will vigorously begin producing the starches that cause the new kernels to develop properly. It is at this time when moisture availability is also critical for grain production. You’ve probably heard that “ rain makes grain “ – again here’s the critical time that makes or breaks the yield.

Weather conditions this year have thus far been ideal for corn growth as rain has fallen in record amounts. Luckily, at least in our fields, we have managed to avoid damage to flooding. Unfortunately many in the cornbelt have not been so lucky.

Historically moisture availability during July and August decreases significantly from what we’ve had in May and June. Annual average rainfall amounts do not vary much from year to year; it then follows that the rains to come may not be as plentiful as the last two months. We have nearly reached our annual rainfall amounts already this year.

I have seen many years where it rains constantly in May and June followed by a shift in the jet stream that plops a high pressure ridge over the cornbelt forcing cold fronts to go around this area drastically reducing rainfall.

Since we have had abundant top level soil moisture thus far the corn roots have not had to grow vertically to reach subsoil moisture. Should the rains dry up over the next few weeks the corn plants, which will then be in their stage requiring high moisture, will not be able to grow tap roots quickly enough to tap subsoil moisture below..

Although soybeans pollinate later in July and August, the same conditions discussed above have nearly identical effects on this crop as taller and healthier plants will set more pods containing more beans per pod when weather is not hot and dry..

So much for fundamentals.

Take a look at the daily chart of soybeans. BTW except for prices the corn charts are nearly identical.

Figure 1: Continuous soybean chart 2013 – 2018

The yellow paintbars on the chart designate the month of July for each year on this daily plot of the continuous soybean chart.

Note, in most cases,  the dramatic moves that occur surrounding the July time frame. Although the length and volatility of these moves differ each year it’s quite obvious that there is a correlation between time and price movement. Note that some years start earlier and some start later – this is a direct result of early spring weather that allowed either early or delayed planting.

Also note the correlation between defined trends with the Relative Strength Index (RSI) which identifies overbought and oversold conditions. Although these are not 100% it is close enough to consider.

Figure 2: Continuous soybean chart 2009 – 2013 showing similar trends as Figure 1.

2018 could be the perfect setup for this seasonal move. Note the last yellow bar formed July 2.

  1. We have had abundant rainfall in the early summer nearly reaching our average growing season amounts.
  2. June has shown a dramatic downtrend in soybean prices due mostly to the recent tariff discussions between the US and China. Realistically the bean yield has not been effected by this outside event; soybeans are a world wide commodity. Someone will buy our beans at some point. Bottom line is that these events have created a dramatically oversold condition on the charts. When the political stuff is settled we should get a rebound.
  3. The RSI indicator is screaming oversold as well.
  4. Carolyn Boroden’s fib analysis is showing possible support near the recent lows.

It’s possible under this scenario that we could get a rally back to the congestion area in the 10.00 to 11.00 area.

Ok – enuf of the serious stuff already.

Granddad is walking through the cornfield with his young grandson in August examining the prospects for the corn crop this year.

“Be careful not to talk about anyone out here” says granddad.

“Why?”

“Look at all these ears….”

3 thoughts on “Seasonal Trades In Grains

    • This post was written by Dr. John Clayburg, a member of our Simpler Trading Team.

  1. Wonderful article! This is the kind of info that are meant to be shared across the internet.
    Shame on the search engines for no longer positioning this post upper!
    Come on over and consult with my website . Thank you =)

Comments are closed.