Revisiting the Seasonality of Cash Corn

• Seasonally, cash corn tends to post a strong rally from the first weekly close of September through the first weekly close the following June. 
• This seasonal pattern is tied to market fundamentals, so when a contra-seasonal trend emerges the first thing I look for is a change in supply and demand. 
• I calculate seasonality differently than most, using indexes rather than flat price to give me a clearer picture of cycles over a usual 12-month period. 

I had a question come in regarding Monday’s post on the seasonality of the cmdty National Corn Price Index (ZCPAUS.CM). I was asked to provide a little clarity on what folks were looking at, bring to mind something an Editor-in-Chief and mentor taught me a long time ago when it came to my analysis, “Explain. Explain. Explain.” With that in mind, let’s revisit the chart in question.

It starts with the final weekly calculations of the NCPI (green line), with the right-side y-axis in dollars per bushel. The x-axis marks the week of the marketing year starting with the first week of September and running through the last week of August. The contract months listed just above the x-axis are the nearby options, with expiration weeks indicated by vertical orange dashed lines. Recall the original piece was talking about shorting options as part of a strategy of being long corn in some way, shape, or form. 

On this chart I compare the NCPI to 5-year, 10-year, and 15-year seasonal indexes. You’ll note the left-side y-axis measures percentages because I set my seasonal studies up by indexing percent moves from average as opposed to most of the rest of the industry using flat price. Why? Because if you use flat price, when you get a year well outside the norm (like 2021-2022) it tends to flatten out the rest of the study and provide little value. By indexing weekly closes the studies tend to show the different wave over the course of a 12-month cycle. 

Looking at the left y-axis, 100% is the average weekly close for whatever time frame I’m studying. For example, if I’m building a 5-year seasonal index I line up the weekly closes and average all 52 of them, then find the average of those 52 weekly averages. I then compare each of the 52 weekly averages to the annual average, in this case giving me percentages ranging from 90% (first week of September) to 120% (first week of June). Our conclusion is, then, the NCPI tends to gain 30% from the beginning of the new marketing year through the first weekly close of June. 

Here I want to remind everyone seasonal analysis is a guide, a filter to use to measure position risk rather than a hard and fast rule. We can, and often do, see contra-seasonal moves. These occur when a change in supply and demand emerges. 

Let’s look at this marketing year’s price. The first week of September showed a final calculation of $5.17, with last Friday’s coming in near $7.66. That’s already a 48% gain, with roughly 8 weeks remaining until the normal seasonal peak. Why? We are dealing with averages of averages meaning real market moves can be well long or short of what the index shows, while the direction can be nearly spot-on. When we see this, though, we have to be careful of possible earlier than normal top forming if the market has run its course. This is the filter aspect of seasonal studies. Fundamentally, corn’s basis and forward curve remains bullish meaning the NCPI and other aspects of corn should – should – continue to move higher. 

But it doesn’t have to, meaning we need to pay close attention to basis, futures spreads, and noncommercial activity in futures (options is a different story). Or in other words the actual structure of the corn market.

Lastly, I do like to use different time frames in my studies. In the case of the NCPI it’s interesting to note the 5-year, 10-year, and 15-year all show a high weekly close the same first week of June meaning the shorter-term studies are being skewed by one big year. 

I look forward to any additional questions this might raise.