Seasonality Stats For 20+ Commodity Markets
Summary
- Energy: We're in a seasonally strong period of the year for WTI crude oil and heating oil. Natural gas has retraced its January spike. Backwardation is increasing in WTI futures.
- Financials: EUR/USD 12-month momentum is at a historical turning point, March has historically been strong for the S&P, and the US 30-year bond is well below its seasonal averages.
- Grains: Agricultural commodities are off to a strong start this year, rice futures are in backwardation, and June has historically been the most positive month for oat futures.
- Metals: Platinum is outperforming palladium year to date, contango has increased in gold and silver, and March has historically been a weak month for gold.
- Softs: March has historically been weak for sugar, lumber futures are still in backwardation, and cocoa has trended higher.
This is my weekly update that outlines seasonal trends and the term structure of futures contracts. All of the below data and graphs come from my Commodity Seasonality website. The website is completely free, and I use Seeking Alpha as my sole outlet for weekly recap articles. I break down the updates by asset class, so let's get started.
Energy
March has historically been the second strongest month of the year for WTI crude oil (USO). The data below is for the past twenty years.
You can see this positive seasonality typically extends into May, then reverses.
It's also been interesting to see backwardation increase in the WTI futures curve. Backwardation is when contracts further out in time are actually priced lower than contracts closer to expiration. Backwardation benefits traders with long exposure, while contango detracts from returns. Most people are familiar with the concept of contango in VIX futures, where VIX futures further out in time are typically priced higher than the front-month contract.
This is important because most investors get commodity exposure through long-only commodity indices like the Bloomberg Commodity Index (tracked by DJP) or the Goldman Sachs Commodity Index (tracked by GSG). Energy futures typically make up the majority of these indices. When energy futures curves are in contango, being long commodities bleeds a "negative roll yield" over time. Now that WTI (and Brent) futures are in backwardation, investors who are long commodities benefit from the monthly roll process.
Natural gas (UNG) has had a rocky start to the year.
Heating oil's (UHN) seasonal trends are quite similar to those of WTI crude oil.
But unlike what's happened in WTI, backwardation has recently decreased in heating oil as the curve has flattened out. 12-month momentum, a long-term trend following metric, is still positive.
Financials
March and April have historically been very strong months for the S&P 500 (SPY).
The S&P's 12-month momentum did drop a bit, but is still in the green above 0%.
JPY/USD (FXY) has been on a tear this year. The Japanese currency is a safe haven asset; it typically catches a bid as volatility rises.
EUR/USD (FXE) 12-month momentum north of 20% has historically been an inflection point for the currency.
The US 30-year bond (TLT) is down 5% year to date, far below its seasonal averages for this time of the year.
Grains
May through September have historically been weak for soybean oil.
Rice futures are in backwardation.
June has historically been the best month for oat futures.
Corn (CORN), and most other agricultural commodities, have risen in 2018 after years of falling prices.
Metals
Contango has widened out in silver (SLV) futures as short-term rates have risen, increasing the opportunity cost for storing silver for future use.
Platinum (PPLT) has outperformed palladium (PALL) so far this year, potentially reversing a multi-year trend of underperformance.
The next main seasonal trend in palladium is winter strength.
Gold's (GLD) seasonality is a bit different. Unlike platinum and palladium, which are more industrial metals, gold (and other safe haven assets) typically rise in the late summer months. March has been a weaker-than-average month for gold over the past two decades.
Here's a look at monthly seasonality for copper (JJC).
Soft Commodities
March has historically been a very weak month for sugar (SGG).
Lumber futures are still in backwardation and have 12-month roll-adjusted momentum of +35.8%.
Coffee (JO) futures are down so far this year, and the seasonal outlook isn't very bright.
Cocoa (NIB) futures have ripped in 2018, now up more than 15%. Here's a view of seasonality.
Conclusion
That wraps up coverage of individual contracts. I'll close with my most important charts.
First, let's look at the 20-year average monthly performance numbers for March. The best-performing contracts have historically been RBOB gasoline (UGA), the S&P 500, and copper. The worst performers have been cocoa, oats, and sugar.
Here's a snapshot of the current amount of contango or backwardation for each contract. I compare the contract with the highest open interest to the contract with the third-highest open interest. Cotton (BAL), WTI crude oil, and lumber are in highest amount of backwardation. Wheat (WEAT), corn, and natural gas are in a substantial amount of contango.
And these are the 12-month roll-adjusted momentum numbers for each contract. Lumber has been the top performer (of the contracts shown) over the past 12 months, and sugar has been the worst performer.
I hope you've found this article to be useful. It's meant to cut down on your research time and save you some money.
Be sure to follow me for my seasonality updates on Seeking Alpha. Let me know if you have any questions in the comments below!
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