September Seasonality Data For Commodities

by: Movement Capital

Energy: Q4 has historically been seasonally weak in WTI crude oil and heating oil.

Financials: September marks the end of a seasonally strong period for the US 30-year Treasury bond.

Grains: September and October have historically been seasonally volatile months in corn.

Metals: October has historically been weak in copper. Contango has increased in many precious metals futures curves.

Softs: Cocoa has historically had its lowest average monthly performance in October.

This is my weekly update that covers 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 Futures Seasonality

WTI crude oil (USO) tends to have negative seasonality until the end of the year.

Here's a monthly view of WTI seasonality. It's important to note that all seasonality measures are for a roll-adjusted position in the front-month contract with the highest open interest.

Backwardation has recently decreased in the front portion of the WTI crude oil futures curve. Contango is when contracts further out in time are priced higher than contracts closer to expiration. Backwardation is when contracts further out in time are priced lower than contracts closer to expiration.

Backwardation tends to benefit traders with long exposure, while contango tends to detract 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. The same concept applies in commodities, and less WTI backwardation implies less of a "roll yield" for WTI longs with front-month exposure.

Henry Hub natural gas (UNG) has historically had low average monthly performance in October. The below averages tend to trend lower over time because the front portion of the Henry Hub natural gas curve has spent a lot of time in contango.

Heating oil seasonality is similar to WTI - Q4 tends to be weak.

Financial Futures Seasonality

The S&P 500 (SPY) is trading in line with its 10-year seasonal average for this time of year.

JPY/USD (FXY), considered a safe haven asset, has historically experienced positive seasonality in the late summer months. This pattern can also be seen in other risk-off assets like the 30-year Treasury bond and gold.

12-month momentum in EUR/USD (FXE) is negative. Historically, 12-month momentum of around +20% has marked turning points for this currency cross.

September marks the end of a seasonally strong period for the US 30-year Treasury bond (TLT).

Grain Futures Seasonality

Soybean oil has historically had the lowest average monthly performance in September.

The front portion of the rice futures curve is back in contango (after a brief time in backwardation), and rice futures have a negative 12-month momentum.

Fall seasonality in the corn (CORN) market is quite interesting. September has historically been very weak, and October has historically been quite strong.

Metal Futures Seasonality

Here's a monthly view of silver (SLV) seasonality. While seasonal trends are muted for the rest of the year, it's important to note the historically strong January-February period in silver.

Contango has increased in platinum (PLTM) futures (and other precious metals). The term structure of precious metals futures is closely related to the level of short-term interest rates. This is because precious metals are quite easy to store, unlike some other commodities such as WTI crude oil and corn. The opportunity cost of short-term interest represents a main cost of owning deferred precious metals.

While typical January strength did materialize in gold (BAR) this year, the historically positive late summer seasonality definitely didn't show up.

October has historically been a weak month in copper (JJCB).

Soft Commodities Seasonality

Backwardation has quickly decreased in lumber futures. 12-month momentum reached +70% in May, but the recent 30% correction has retraced a bulk of the rally.

September has historically had the second lowest average monthly performance in coffee (BJO) futures. The front portion of the coffee futures curve, like wheat and natural gas, has historically spent a lot of time in contango.

October has historically had the lowest average monthly performance in cocoa (NIB).

Commodity 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 the month of September. The best-performing contracts have historically been oats, gold, and the 30-year Treasury bond. The worst-performing contracts have historically been soybeans (SOYB), platinum, and corn.

Here's a snapshot of the current amount of contango or backwardation for each contract I track. I compare the front-month contract with the second-month contract, rolling both before the first notice date for the front-month contract. This graph looks a lot different than it did at the beginning of the year, when many more commodity curves were in backwardation. Lumber and WTI are in a slight amount of backwardation, while contango is steep in wheat (WEAT), corn, and coffee.

Below are the 12-month roll-adjusted momentum numbers for each contract. WTI crude oil, heating oil, and cocoa have been some of the best-performing commodities over the past year. Platinum, silver, and coffee have been some of the weakest commodities.

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, I'm happy to help out.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article should not be construed by any consumer as personalized investment advice over the internet. This article does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked in this article or incorporated herein. GraniteShares sponsors the free Commodity Seasonality website but in no way paid for this article. This article and information are provided for guidance and information purposes only. Investments involve risks and are not guaranteed. All information provided in this article should not be reproduced, copied, redistributed, transferred, or sold without the prior written consent of the author.