It may be time for an attitude adjustment in soybeans
Key points
- Soybeans have experienced extreme price weakness in recent years
- Beans declined over -22% from May into August of 2024 and over -45% over the last two and a half years
- That said, the annual seasonal trend for soybeans now suggests that the worst may be over and that traders should start to look for opportunities to play the long side of this highly cyclical market
Seasonality suggests the worst may be behind us
The chart below displays a long-term chart of price action for soybean futures.
The chart below displays the annual seasonal trend for soybean futures. Note that there are essentially two distinct periods:
- Favorable from Trading Day of Year (TDY) #191 to TDY #131 of the following year
- Unfavorable from TDY #131 to TDY #191
The most recent unfavorable period ends at the close on 2024-10-03. The chart below displays the hypothetical $+(-) achieved by holding a long position in soybean futures only during the unfavorable TDY #131 to TDY #191 period, every year starting in 1937.
The table below summarizes annual results during unfavorable periods.
Transitioning to a favorable period
As we saw in the seasonality chart above, a favorable seasonal period begins at the close of TDY #191 and extends through TDY #131 of the following year. This new favorable period starts at the close on 2024-10-03.
The chart below displays the hypothetical $+(-) achieved by holding a long position in soybean futures only during the favorable TDY #191 to TDY #131 period, every year starting in 1937.
The table below summarizes annual results during favorable periods.
An ETF alternative for non-futures traders
Traders who wish to play the soybean market but do not want to trade futures contracts can buy shares of the Teucrium Soybean Fund ETF (ticker SOYB) just as they would buy shares of any stock or ETF. The key difference is the lack of leverage and the elimination of the unlimited risk associated with futures trading.
What the research tells us…
So, are soybeans destined to rise sharply higher starting on October 4th? Not necessarily. As always, it is essential to remember that seasonality is not a roadmap, only an average of what has happened in the past. That said, the message right now regarding soybean seasonality is two-fold: 1) Traders playing the short side should consider taking profits or maintaining a relatively tight trailing stop, and 2) Traders should now start looking for opportunities to play the long side.