Articles

Commodities In A Portfolio
By Sal Gilbertie

Page 5 of 6

Conversely, sugar often (but not always) reaches both its absolute-price high and its widest positive divergence from annual average prices around February or September. These might be opportunities for those with an overweighted sugar beta component to reduce some of their holdings; the same timing might allow an alpha trader to exit long positions initiated earlier.

These macro-patterns are also often found in the corn and soybean markets. Like sugar, corn and soybeans tend to bottom or negatively diverge from the 12-month average price at harvest time, as illustrated Figures 5 and 6. For corn and soybeans, the most significant global harvest occurs between October and December, coincident with peak harvest time in the Northern Hemisphere. Seasonal patterns establishing absolute-price tops and positive variance from average annual prices tend to be more difficult to identify in the corn and soybean markets, but they generally occur between March and July.

Corn Futures Prices

Wheat markets have significant seasonality also, with dual peaks in late summer and midwinter, and dual lows in late spring and late autumn. Wheat is harvested multiple times a year: Winter wheat is harvested in late spring, while other varieties are harvested in summer and into autumn, illustrated in Figure 7.

Wheat Seasonal

Seasonality in the core agricultural commodities of corn, soybeans, wheat and sugar may be more supply driven than demand driven. This could be due to the fact that agricultural commodities have a relatively inelastic demand pattern, driven by a wide variety of uses including food, animal feed, fuel and various industrial products. But other important commodities, like oil and copper, have different seasonal tendencies that may be influenced more by usage patterns than by supply patterns. For instance, construction activity is often more intense in warmer months; hence copper's seasonal pattern of often establishing price/variance from average lows during the Northern Hemisphere's winter months and price/variance from average highs in the summer months, as shown in Figure 8.

Cooper Futures Prices

Motor fuel usage—and therefore refinery utilization—also tends to be higher during the Northern Hemisphere's summer season, perhaps influencing crude oil's seasonal tendencies of midwinter lows and midsummer highs, as illustrated in Figure 9.

Crude Oil Seasonal