Commodity Trader's Almanac 2O11

62

MOTHER NATURE

MAKES CORN POP

Corn tends to peak in June under normal crop

years, as planting is complete and farmers are

looking for cooperation from Mother Nature

to produce increased production yields. Look

to sell on or about June 24 and hold through

August 1. This is when we typically get a

“drought scare” or mid-summer rally. The 40-

year history of this timing strategy shows a win

in 27 of those years, for a success rate of 67.5%.

With the price increase in corn headed into

summer, we normally see the market settle back,

as farmers have a better idea of their crop size

and start to hedge or forward contract sales out

to lock in a profit. Depending on the levels of

volatility, traders can look to sell futures or buy

put options or once again look for alternative

trading opportunities.

The chart below has Deere & Co. (DE)

overlaid with corn prices and the bottom line

showing the seasonal tendency of corn prices

since 1970. As you can see, there is a high

correlation of the price of corn and the share

price of DE. One can look to sell DE, buy puts,

or write calls in the seasonally weak timeframe

that starts in June and goes into July. See pages

133–138 for additional correlated trades.

Chart courtesy TradeNavigator.com

CORN (C) BARS AND DEERE & CO. (DE) CLOSES

(WEEKLY DATA JANUARY 2009–MAY 2010)

ENTRY EXIT PROFIT/

YEAR DATE CLOSE DATE CLOSE LOSS

1970 6/24 133 1/4 7/30 130 5/8 $131

1971 6/24 154 1/4 ...