By Sterling T. Terrell
I love this time of year. Less heat. More cool air. Clouds roll in. School is back in session. Harvest time is here. We start thinking about the upcoming holiday season. We worry about what relative’s house we will be spending Thanksgiving and Christmas at – and more importantly what the sleeping arrangements will be.
In The Seasons, Oliver Wendell Holmes wrote:
“The foliage has been losing its freshness through the month of August, and here and there a yellow leaf shows itself like the first gray hair amidst the locks of a beauty who has seen one season too many…. “
On that note, football is hard to not enjoy.
What is better than a game of touch football in the backyard with your friends as a child? A Friday night game in high school, whether you are cheering from the stands or playing on the field? Tailgating before the big rivalry game while in college, and cheering your team to victory? Or, firing up the grill with friends on an NFL-filled Sunday afternoon while your children run and play in the yard?
I submit that there is a specific season that goes best with football. Football is certainly no summer sport.
In that same way, is there a season that goes best with selling your cotton?
Or maybe, said better: Is there a time of year that cotton prices are on average higher or lower?
On the optimal time to sell cotton, I have heard it all from growers before:
“You should never sell your cotton on a Friday.”
“You should never sell your cotton before the first of January.”
“Cotton’s price is always lowest in December – and highest in April.”
All of these statements allude to the same thing. But I ask again, what does the data tell us?
As luck would have it, the work has thankfully been done for us. Economist Gary Raines of INTL FCStone has written a beautifully concise paper entitled Another Look at Seasonality in ICE Cotton Futures that answers this question superbly.
Raines looked at monthly data from October 1972 – October 2012. To fish out the answer of seasonality, each monthly price was converted into a ratio of monthly price and average annual price.
The research found:
“…ICE cotton futures show a pronounced pattern of seasonality, with prices typically above average in the first half of the year and below average from July through December. These periods follow conventional wisdom given the bulk of the global cotton crop is grown in the northern hemisphere, where harvest typically happens from August through December. These two distinct periods of seasonality show cotton futures are typically one to 3.5% more expensive during the first few months of the year and are one to 3.5% less expensive during several of the latter half of the calendar year.”
This means that if cotton prices averaged 85 cents per pound during a year we would, on average, expect that during March through May prices would be around 88 cents per pound. At the same time, we would, again – on average – expect that during August through November prices would be around 82 cents per pound.
For a producer averaging 1,00 bales a year, capitalizing on this seasonality amounts to capturing an additional 15,000 Dollars in revenue in our example year. If continued, that would amount to 450,000 Dollars over a 30-year career.
Yes, seasonal prices are lower and higher in some years than in others. Yes, we are dealing in averages. Yes, these findings are not an end-all-be-all solution. But is it not better to have, and to know that there is a seasonal effect to cotton prices than for one to not exist at all?
That said, if it is November and cotton prices are approaching two dollars per pound, you might be wise to go ahead and sell your current crop, and hedge next years crop – instead of waiting for the average seasonal shift in March – May.
In that case, forget seasonality. Enjoy whatever season it is! And take the money.
Sterling T. Terrell is a Commodity Broker at Tru Trading Co and an Independent Cotton Analyst. Email him at: firstname.lastname@example.org.