A Mid-Summer’s Night(mare for) Beans

  • SumoMe

See also Ominous Energy

Grain prices have a long record of exhibiting seasonal price trends.  This is due primarily to the fact that the planting, growing and harvesting cycle in the Midwest remains the same year in and year out.

In a nutshell:

*Planting begins in early spring

*Growing takes place during the summer

*Harvesting occurs in the fall

*Repeat, ad infinitum, every year, ad nauseum, this year, next year, the year after that and so on and so forth…because it simply can’t be done any other way (at least not here in the Midwest where – trust me on this one – it gets really cold in the winter, and nothing can grow in the frozen ground).

This allows us to anticipate certain things on an annual basis:

*Prior to planting season there are exactly zero beans growing or even in the ground, thus there is “doubt” and “uncertainty” regarding the crop yield for the upcoming year.  At this point all we have are weathermen offering “predictions” regarding whether planting and growing season weather will be good or bad (and what could go wrong with following their advice?).  As a result, prices tend to rise late winter into early spring – especially during years with harsh winters.

*If there is trouble planting in the fields in spring we can anticipate a lower crop yield and thus higher prices (please do not make me explain the whole “supply and demand thing” again – that’s what God invented Google for) for beans.

*If there is a drought in the summertime – or too much rain – same thing…higher prices in anticipation of a lower crop yield.

*On the other hand, if planting and growing season experience good weather then we can anticipate that the crop yield will be abundant and as a result, bean prices will likely decline.

*In any event, usually by mid-summer the “bean counters” (no, seriously) have gone out into the fields and assessed state of the crops (and you think your job is boring) and are able to make a pretty good estimate (their job may be boring but they are pretty good at it) of whether the crop yield will be large or small.  Either way, once the “doubt” and “uncertainty” is pretty much removed, bean prices have showed a tendency to weaken during mid-summer.  This is true even during a bad year for growing beans as most of the “fear” buying already occurred during the winter into early summer months.

*By fall, the harvest is coming in – usually pretty much as projected months ago and nobody cares about soybeans for awhile and everyone loses interest until next year (come to think of it, it’s sort of like being a Cubs fan).  Thus bean prices tend to weaken in late summer to early fall.

So are there ways to take advantage of all of this boring repetitiveness?

Would I write an article and ask the question, if the answer was “No”?

Beans Bearish Seasonal Summer Bias

Soybean prices have showed a strong tendency to weaken between:

*The end of July Trading Day #9, and;

*The end of August Trading Day #6

Can I be any more specific than that?

This year this unfavorable period extends from the close on 7/14 through the close on 8/10.  Does this matter?  You be the judge.

The Historical Results

The following results were generated using November soybean data from July Trading Day 9 through August Trading Day 6. I manually checked the data from 2000 forward, prior year results are from “sources believed to be accurate.”  Here is what it shows:

*# of years showing a gain = 7 (18.9%)

*# of years showing a loss = 30 (81.1%)

*Average gain during 7 UP years = +3,234

*Average gain during 30 down years = (-$2,778)

*Average of all years = (-$1,640)

*Median of all years = ($-1,400)

*Largest gain = +$7,375 (1983)

*Largest Loss = (-$18,925) (2008)

Figure 1 displays the year-by-year results of holding a long 1-lot position in soybeans during the unfavorable July into August period from 1978 through 2014.

1Figure 1 – Annual $ change in 1-lot of soybean futures during unfavorable summer period (1978-2014)

Figure 2 displays the cumulative results of holding a long 1-lot position in soybeans during the unfavorable July into August period.

2

Figure 2 – Cumulative gain/loss holding long 1-lot of soybean futures during unfavorable summer period (1978-2014)

So the bottom line is that holding a long position in soybeans during this period is a whole lot like “swimming upstream”.  On the other hand, a speculator who plays the short side of the bean market during this period may find “the wind at his back.” (That being said, please note the use of the word “may” and the lack of the words “are” and “certain” and “to.”)

Summary

Are soybean prices sure to plummet between 7/14 and 8/10?  Hardly.  Remember that in 1983 beans gained over $7,000 a contract during this supposedly “bearish” period.  Also, it should be noted that 3 of the past 6 years have seen beans gain ground during this time.  So maybe this “cycle” has “run its course” and “lost its edge.”  In truth only time will tell.

The only things we do know for certain at the moment is that beans are non-existent in winter, are still planted in the spring, still grow in the summer and are still harvested in the fall.

Same as it ever was.

Jay Kaeppel

 

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