History lesson
Does it REALLY repeat itself? Is it actually relevant any more? Are we in a whole new ball game and everything that's gone before is out the window? Here's the thoughts of one market analyst:
While there is no sure-fire way to predict the future, history does have its merit, especially when it comes to the seasonality of commodity markets. Often prices reach high levels when supply is expected to be limited and uncertainty for the upcoming growing season is in front of the new crop. If crops mature without issue, this usually implies increased supply. The natural tendency for end-users is to buy only as needed until it appears the market is finding a bottom. Then long-term buying comes into play as end users take advantage of cheaper prices and increased inventory. Basically, it is the simple laws of supply and demand that move prices.
So what does history tell us for the corn, soybean and wheat markets? Our study indicates that, over time, these markets have a tendency to peak in the winter or early spring months. At that point, all variables for the upcoming crop are unknown. If normal growing conditions exist, and unless there is a significant change in perceived demand, prices typically slide into harvest. Our research indicates that, as of this writing if one looks over the past 10 years, prices have been down 7 out of 10 years 60 days out from today and down 8 out of 10 years 90 days out from today. In essence, as the corn crop grows and matures, the market will take uncertainty out of prices through lower value.
For soybeans, the next 60 days indicates up in 6 out of 10 years, but 90 days out the market has been down 6 out of 10 years. As for Chicago wheat futures, the market has been weaker 7 out of 10 years over the next 60 days (reflecting harvest pressure) and down 6 out of 10 years over the next 90 days.
We would caution anyone using history alone as a method to outguess the market. However, with historically high prices for corn and soybeans, the likelihood is good that, if crop conditions appear adequate and weather outlook mostly normal, prices will be on the defensive into the mid-to-late June time period. After that, all bets are off, as weather may have a significant impact directing prices. Wheat should edge lower reflecting harvest pressure.
While there is no sure-fire way to predict the future, history does have its merit, especially when it comes to the seasonality of commodity markets. Often prices reach high levels when supply is expected to be limited and uncertainty for the upcoming growing season is in front of the new crop. If crops mature without issue, this usually implies increased supply. The natural tendency for end-users is to buy only as needed until it appears the market is finding a bottom. Then long-term buying comes into play as end users take advantage of cheaper prices and increased inventory. Basically, it is the simple laws of supply and demand that move prices.
So what does history tell us for the corn, soybean and wheat markets? Our study indicates that, over time, these markets have a tendency to peak in the winter or early spring months. At that point, all variables for the upcoming crop are unknown. If normal growing conditions exist, and unless there is a significant change in perceived demand, prices typically slide into harvest. Our research indicates that, as of this writing if one looks over the past 10 years, prices have been down 7 out of 10 years 60 days out from today and down 8 out of 10 years 90 days out from today. In essence, as the corn crop grows and matures, the market will take uncertainty out of prices through lower value.
For soybeans, the next 60 days indicates up in 6 out of 10 years, but 90 days out the market has been down 6 out of 10 years. As for Chicago wheat futures, the market has been weaker 7 out of 10 years over the next 60 days (reflecting harvest pressure) and down 6 out of 10 years over the next 90 days.
We would caution anyone using history alone as a method to outguess the market. However, with historically high prices for corn and soybeans, the likelihood is good that, if crop conditions appear adequate and weather outlook mostly normal, prices will be on the defensive into the mid-to-late June time period. After that, all bets are off, as weather may have a significant impact directing prices. Wheat should edge lower reflecting harvest pressure.