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.)
[ For those who are interested in the derivatives market but aren't ready to begin trading grain, options provide an excellent introduction to derivatives trading. For an overview of options, how they function in the market and options trading strategies, check out Investopedia Academy's Options for Beginners course. ]
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.)
In general, the months where higher levels of buying occur are:
The months where higher levels of selling occur are:
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.