Beware beans

Key Points

• Soybean seasonality in the middle of a period of historically consistent price weakness
• 2024 could certainly be an exception to the bearish rule, but a trader needs a solid reason to risk holding a long position in beans during the upcoming seasonally weak period
• Aggressive traders should continue to look for opportunities to press the short side

Why soybean seasonality tends to persist

Each year, as soybean harvesting season begins in the U.S. Midwest, little doubt remains about the state of the crop harvest. It is either good, bad, or somewhere in between, but the critical point is that the state of the crop harvest is a known quantity. As a result, whatever risk premium has been built in typically is shed during this September/early October period.

To understand this hedge unwinding, the chart below displays the annual seasonal trend for soybean futures. As you can see, beans are about to enter another period of typical price weakness that extends from the close on Trading Day of the Year (TDY) #176 through TDY #191. For 2024, this period extends from the close of 2022-09-12 through 2022-10-03.

The chart below displays the cumulative $ +(-) for soybean futures held long only during Trading Day of Year #176 through TDY # 191. 

The table below displays a summary of performance starting in 1937.

Seasonality tends to be most meaningful when price trends and seasonal trends align. In other words, if the price is in a downtrend when seasonality says it "should" be in a downtrend, that typically tends to be a good time for traders to press their advantage. The chart below shows that soybeans have been in a significant downtrend for some time. The one concern might be that they are so oversold that there may not be much downside potential left.

The chart below compares soybean's annual seasonal trend to actual price action so far this year. Even the typically favorable early part of the year failed to show any strength. 

What the research tells us…

The standard seasonality caveat applies: In any given year, anything can happen. Still, over the past eighty-seven years, in roughly three out of every ten years soybeans decline in price as the fall harvest season approaches. In addition, the losing years tend to be significantly greater than the winning years in terms of $ price movements. A trader must have a solid reason to consider holding a long position during this period. Likewise, speculators willing to play the short appear to have a substantial historical "edge" in their favor.