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

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  2. Investing News

    This Is Why Every Chipotle Is Closed for One Day

    Chipotle Mexican Grill Inc. (CMG) has had a rough year when it comes to food safety. Management is hoping that closing all locations for a company-wide meeting Monday will help resolve the issues ...
  3. Options & Futures

    What Does Quadruple Witching Mean?

    In a financial context, quadruple witching refers to the day on which contracts for stock index futures, index options, and single stock futures expire.
  4. Options & Futures

    4 Equity Derivatives And How They Work

    Equity derivatives offer retail investors opportunities to benefit from an underlying security without owning the security itself.
  5. Options & Futures

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  6. Options & Futures

    Contango Versus Normal Backwardation

    It’s important for both hedgers and speculators to know whether the commodity futures markets are in contango or normal backwardation.
  7. Investing Basics

    What Does Contango Mean?

    Contango​ is when the futures price of a commodity is higher than the expected future spot price.
  8. Chart Advisor

    Defined Ranges In Soft Commodities Present Opportunities

    Based on the defined ranges shown on the charts of several soft commodities, now could be the time to watch this group for a reversal.
  9. Options & Futures

    The Short Guide To Insure Stock Market Losses

    The best ways to hedge against losses are to diversify your portfolio and to use a variety of options.
  10. Term

    How Points Relate to Financial Instruments

    Points usually refer to the measurement of some change in a financial instrument’s value.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. Can mutual funds invest in options and futures? (RYMBX, GATEX)

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  4. Can mutual funds invest in commodities?

    Mutual funds can invest in commodities. In fact, mutual funds may provide a better way for investors to gain exposure to ... Read Full Answer >>
  5. 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 >>
  6. 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 >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center