Corn futures, traded at the Chicago Board of Trade, tend to trade according to a loose seasonal pattern. These trends occur mainly due to the availability of corn in the cash market at certain times of year. Although these trends may not always work alone, they will often work in conjunction with other indicators, both fundamental and technical. Any farmer or professional grain trader knows these trends and likely uses them in their trading. Farmers use these trends in order to initiate hedge positions and as an indication as to when cash corn should be sold. Traders often use this knowledge to back up an existing notion or indicator. For the novice grain trader, this knowledge is relatively easy to understand and apply, and in this article, we'll help you understand these crops from seeds to harvest. (For more information on grain trading, read Grow Your Finances In The Grain Markets.)

Fall Seasonal Trend
According to most seasonal charts, the corn market is generally at its weakest prior to and during the harvest. These "harvest lows" generally occur between September and November, the period when farmers across North America harvest corn and deliver it to their local elevator. These lows generally occur because of the supply of cash corn that is thrown into the market. As with any market, high supplies generally equate to low prices. (Also, read Harvesting Crop Production Reports to learn how these USDA publications can help you read supply and demand in the grain markets.)

During the fall, there is also a good deal of corn in storage that is sold in order to make way for a new crop. It is during this time frame that longer-term traders will begin to initiate long positions in the market using deferred contracts. For example, a trader may begin buying May or July corn futures in November or December while prices are at their lowest seasonally. Any seasonal trader will advise against initiating short positions during this timeframe. Instead, they may opt to either stay out of the market or initiate a long position.

Winter and Spring Seasonal Trend
In many years, the opposite scenario occurs in the corn market from December to May. Through the spring, once farmer-owned grain has been sold and used domestically or abroad, prices tend to rise. Traders and producers alike are generally advised to initiate short positions towards the end of this time frame. Seasonal tops in the market tend to occur around February and March. (Read about one modern use of corn in The Biofuels Debate Heats Up.)

The reasons for a winter-spring rally may vary. One reason may be an "acreage battle", which occurs when there is a shortage of acres on which to plant crops. Corn and soybeans often compete for acreage on farms across the country during this season, meaning that the market with a price that is more attractive to farmers will see more planted acreage. These battles are over during the spring after planting occurs.

Summer Seasonal Trend
Sometimes highs can occur during the summer. Summer highs generally occur if an unfavorable weather pattern could threaten the eventual size of the crop. In years where there is no significant weather threat, highs in the corn market do not generally occur in the summer. (Learn how you can turn unfavorable weather into profits in Introduction To Weather Derivatives.)

General Guidelines
In general, the months where higher levels of buying occur are:

  • October
  • November
  • December

The months where higher levels of selling occur are:

  • February
  • March
  • April
  • May

Conclusion
Obviously, these guidelines do not work in every year or under every circumstance. The guidelines can help to indicate market direction when used in conjunction with other indicators. In general, most traders will use these indicators to help confirm another signal, either fundamental or technical. Traders should not trade using seasonal trends alone, as outside market factors can have sometimes have a major impact on them. Still, this knowledge is a must-have weapon in any grain trader's arsenal and is one of the most basic components of trading in the corn market. Any broker with a working knowledge of the grain market should be able to supply traders with seasonal corn charts, which should help to supplement this article.

For more information on commodities trading, read Commodities That Move The Markets.

Related Articles
  1. Chart Advisor

    Traders Step Back to Assess Commodities Damage

    Traders are turning to these exchange-traded notes and exchange-traded funds to analyze key commodities and determine what could be coming next.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares Gold Trust

    Learn about the SPDR Gold Shares ETF, how it tracks the price of gold, and what type of investors may want to hold shares in their portfolios.
  3. Investing Basics

    Explaining Forward Rate Agreements

    Forward rate agreement (FRA) refers to an interest rate or foreign exchange hedging strategy.
  4. Investing

    Using Fibonacci to Analyze Gold

    Use Fibonacci studies to analyze gold by picking out hidden harmonic levels that can provide major support or resistance.
  5. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  6. Technical Indicators

    Key Financial Ratios to Analyze Oil Companies

    Learn about key financial ratios investors will want to use when analyzing oil companies, and what these ratios say about the future prospects for companies.
  7. Mutual Funds & ETFs

    ETF Analysis: United States Natural Gas Fund LP

    Find out more about the United States Natural Gas exchange-traded fund, the characteristics of the ETF and the suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF/ETN Analysis: VelocityShares 3x Long Crude Oil

    Learn more about the VelocityShares 3x Long Crude Oil exchange-traded note, or ETN, a triple-leveraged debt security backed by Credit Suisse AG.
  9. Mutual Funds & ETFs

    ETF/ETN Analysis: iPath S&P GSCI Crude Oil

    Learn about iPath S&P GSCI Crude Oil exchange-traded notes and how investors can use this ETN to profit from short to intermediate changes in oil prices.
  10. Mutual Funds & ETFs

    ETF Analysis: United States Oil Fund

    Find out more about the United States Oil Fund, the characteristics of USO, and the suitability and recommendations of the ETF for investors.
RELATED TERMS
  1. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  2. Best To Deliver

    The security that is delivered by the short position holder in ...
  3. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  4. Crop-Hail Insurance

    A type of insurance that insures against crop damage caused by ...
  5. Genetic Engineering

    The artificial modification of an organism’s genetic composition. ...
  6. Agribusiness

    The business sector encompassing farming and farming-related ...
RELATED FAQS
  1. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  2. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  3. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  4. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  6. How can electricity be traded as a commodity by an individual investor?

    Electricity can be traded in the financial marketplace like any other commodity. Electricity futures trading offers an alternative ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!