Seasonality pattern is an important factor that traders have to consider while trading grain futures like corn and soybean.
In this post, let’s do a deep dive into how a trader can integrate seasonality pattern into his/her trading strategy while trading corn and soybean!
Understanding the seasonality pattern in the corn and soybean market:
The US is one of the main producers of corn and soybean in the world. They are also produced in similar states, such as Iowa and Illinois.
From the table above, we can observe that the planting and harvesting seasons of corn and soybean tend to be closely similar.
| Planting Season | Harvesting Season |
Corn | March – May/June (Spring) | September – November (Autumn) |
Soybean | March – May/June (Spring) | September – November (Autumn) |
This also suggests a similar historical seasonality pattern.
Putting the historical seasonality pattern of Corn and Soybean side-by-side, here are what we can observe:
Both corn and soybean prices tend to peak in May – June, while bottom between the month of August - October.
Let’s look back at past trends and see if it is indeed true:
Corn futures seasonality pattern (2018 - 2022)
Soybean futures seasonality pattern (2018 - 2022)
Generally, with the exception of 2020, both corn and soybean do indeed follow seasonal patterns relatively well.
What causes such seasonality pattern?
(a) Volatility during the planting season
Being an agricultural product, there tend to be a lot of uncertainties regarding the price of corn and soybean during the planting season.
Factors such as weather (eg. Draught, tornado) can impact the potential yield, which causes heightened volatility in the prices of corn and soybean during the planting season.
(b) Stability and bottoming during the harvesting season
Once the crops are harvested, uncertainties begin to subdue and this would tone down the volatility in both the corn and soybean market.
This is also the time of the year when prices of corn and soybean tend to bottom.
Integrating seasonality pattern into your trading strategy
(a) Forming longer-term biases for position & swing trading
Longer-term corn and soybean traders can implement seasonality patterns, alongside existing technical analysis approach for a more precise trading entry and exit.
(b) Forming short-term bias & risk-management for day-trading
Likewise, shorter-term traders could also use seasonality patterns to identify directional biases, and adjust their position-sizing accordingly.
As an example, in the movement to seasonality peak months, traders could position to be more long-bias while trading, and place larger positions toward long trades, and/or reduce exposure on lower probability short trades.
Verdict – Use seasonality pattern to build your trading edge
Agriculture futures such as corn and soybean have very similar seasonality patterns, and the patterns tend to be consistent in the long run.
As such, traders who are keen to explore the potential in the corn and soybean market should consider adding seasonality factors as part of their trading arsenals.
I hope this post is helpful, and if you have any questions on futures trading, feel free to leave them in the comment section below!
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Disclaimers
Any of the information above is produced with my own best effort and research.
This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.
Leverage is a financial tool that comes with its advantages and risks. Please learn and understand both the upsides and downsides of leverage before using it for trading.
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