Vol is High by the Fourth of July
Cornstalks sway in the breeze and (corn-fed) ‘dogs are on the grill: American agriculture is front of mind in the summertime. Weather, planting, harvest and stocks all impact field crops in the United States throughout the summer, making the season the most volatile of the year for U.S. grains and oilseeds.
Field crop seasonality and volatility
Field crops such as corn and soybeans demonstrate seasonality, or regular patterns of supply and demand over the course of the calendar year. In the United States, corn and soybeans are planted in the spring and harvested in the fall, with the specific time of planting and harvest dependent on the particular conditions of the year.
CME Group Soybean futures are listed for expiration in January, March, May, July, August, September and November. This listing cycle reflects key points in the crop cycle of the plant: The crucial blooming and setting of pods occur primarily in July and conclude nationally by the end of August. Most soybeans are harvested in October; November Soybean futures are the respective year’s new crop instrument, because the oilseeds deliverable against those futures have been newly harvested. July Soybean futures, conversely, are an “old crop” expiry, because the grain deliverable against July Soybean futures has been in storage since its harvest the prior autumn. Relative Soybean futures prices tend to peak in the summer, as the old crop ages and supply tightens.
Crop progress in the United States: soybeans
As old crop soybean stocks decline throughout the summer, the health of the new crop, which is in the process of growing, becomes of increasing importance. Weather conditions, such as temperature and rainfall, can greatly impact crop development and yields. Unexpected circumstances including drought, flooding or extreme heat between planting and harvest can significantly affect the supply dynamics of soybeans, leading to increased volatility in futures prices.
New crop instruments experience distinct market dynamics from old crop instruments. Extreme summer weather, for example, may impact new crop instruments more dramatically than it does old crop, since it may affect near-term yield. If that weather were to complicate immediate river transportation, however, old crop instruments may react, since movement of their underlying physical commodities could be impeded.
Average weekly CVOL for Corn (CVL) and Soybeans (SVL)
Corn and Soybean volatility peaks in between the second and third quarters of the year, or late June and early July. At present, average weekly CVOL, an implied volatility metric derived from options pricing, is slightly lower in Corn (CVL) and slightly greater in Soybeans (SVL) compared to the same time last year. Both products saw notable increases in volatility going into June, peaking mid-year.
That peak in volatility coincides with the release of the USDA Acreage report, which is arguably the most impactful USDA reports released throughout the year, reporting the definitive estimation of planted acreage by the nation’s farmers. While Prospective Plantings, which is released on the last weekday of March, reports intended acreage for principal crops for the upcoming crop year; Acreage reports planted crops, serving as an indicator of how well the reality of the crop year met expectations at its outset. As is the case for many reports, analyst polling affects price movement post release, whereby a release reporting less than expected acreage would have a bullish effect on markets, and a release reporting more than expected acreage, bearish.
Intertwined with planting decisions, weather and resulting crop conditions are, naturally, a driving force in summer volatility. The U.S. National Oceanic and Atmospheric Administration (NOAA) is predicting a long, hot summer in much of the United States, after the record-shattering global heat of 2023. El Niño is expected to give way to La Niña mid-summer.
Seasonal outlook, June-August 2024
Heat and accompanying drought sunk the Mississippi River to record lows in the last two autumns, complicating the transportation of grain on the nation’s most important inland waterway. This year, all eyes are on the river, with the headache of a dry riverbed still a recent memory. NOAA is currently predicting above-average precipitation in the Southeastern United States this summer.
Express a view or precision hedge
The suite of CME Group Agricultural futures and options holds the tools with which to express a nuanced view, or to precision-hedge risk throughout seasons of volatility. Deep and liquid front-month futures such as July Corn and Soybeans allow for directional exposure responding to immediate price movement. New crop products such as Short-Dated New Crop options, New Crop Weekly options and conventional new crop options settling to November Soybeans and December Corn futures allow market participants exposure to the new crop year as its growing season develops. Whatever your risk profile or market view, learn more at www.cmegroup.com/agriculture.
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
