To help with their pricing decisions, crop marketers should be aware of seasonal price patterns, says an Alberta Agriculture and Rural Development market specialist.
Supply and demand is the main determining factor and so prices tend to follow in step with production cycles, said Neil Blue.
Seasonal prices are calculated by taking the average price for a certain time period (such as a week or month) and comparing it to the average price over the year. Often, the seasonal prices are plotted on a bar or line graph, with the annual price average as Index 100. Usually, such a calculation is done using data from several years, thus reducing the influence of contra-seasonal price moves that happen in some years, usually from a supply reduction.
“In years of average or higher yield, crop prices tend to make a low during harvest when there is plenty of available supply,” says Blue. “For example, western Canadian canola price lows typically occur in the first half of October… After a harvest low, prices usually rebound as harvest selling pressure subsides and as demand again becomes evident. Canola prices tend to level off into the end of November, show some improvement during the December holiday period, trade sideways to lower into mid-February and then improve into spring. Canola prices tend to peak sometime in May-June and, unless production problems continue to support prices, usually fall from mid-July into the harvest low.”
Seasonal prices for different crops can be affected by different factors.
The pattern is different for a crop like wheat because prices are affected by what’s happening in the U.S., Europe, Australia and Argentina, he said.
“For example, wheat prices often improve in late March and April because of concern over frost damage to the emerging U.S. winter wheat crop,” said Blue. “Sometimes, our wheat prices can improve during October/November over concerns for the Australian wheat crop. Feed barley prices can be influenced by U.S. corn prices, but tend to follow the spring crop seasonal pattern with fall lows and May or June price highs. Feed barley prices often spike during the Christmas holiday season or during a period of extreme winter weather. Our pea prices tend to follow our seasonal production pattern, but also are subject to the influence of two seasonal pea production cycles in India, a major producer and one of our major export markets.”
Seasonal price patterns are an underlying price influence to consider when developing a marketing plan and analyzing a market, he said.
“The tendency is for fall delivered prices to be the highest at the beginning of the growing season when production uncertainty is the highest. That is often the best time to be forward pricing some expected production, considering cash flow needs and available storage for the expected new crop.”
Prices can rise during the growing season if there are production problems in a major growing area, so Blue recommends forwarding contract with a buyer up to about 50 per cent of expected production of a crop. To price a higher percentage of a crop prior to harvest, it is prudent to consider using the futures or options market if those alternatives are available for that crop,” he said.
“Of the many factors that can affect crop prices, seasonal price patterns are one to be aware of,” said Blue. “Remember that seasonal patterns differ somewhat by crop. Despite the development of world trade channels, electronic futures trading, and the influence of funds on the prices of commodities, seasonal price patterns are still deserving of a crop marketer’s respect.”