Seasonal Effects On Sugar, Coffee And Cocoa

Includes: JO, NIB, SGG
by: Fred Piard

In previous articles I have shown how to take advantage of seasonal effects on stock indexes (click here) and metals (click here).

In this one I would like to give a summary of seasonal effects on 3 sweet commodities: sugar, coffee and cocoa.

The following table summarizes the historical monthly trends for the price of futures contracts for 37 years. For every month and every commodity, a number represents the magnitude of the trend. For example, 1 means than the monthly average return is roughly between 1% and 2%; -3 means that it is between -3% and -4%. An empty cell means no significant trend (between -1% and 1% on average).

The "ETF" column gives the most liquid ETF or ETN on each commodity. Remember that the trends have been calculated on the Futures and not on the ETNs whose inception dates are more recent.

ETF Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Sugar SGG 1 -2 -3 -3 -1 3 1
Coffee JO -5 2
Cocoa NIB 2 2 -3

These historical facts might be used as a filter or a confirmation to improve one's timing. For example, I would avoid selling short sugar in October or buying coffee in June, except when all other indicators strongly confirm the trade. On the other hand, a weak technical "buy" signal on cocoa in June or July would be reinforced by the seasonal trend. Check the contango or backwardation value on Futures before taking any position in a commodity ETF or ETN.

We note that Sugar and Coffee have been in a long term bearish trend for 37 years, and Cocoa in a bullish trend.

Another conclusion that can be drawn from this table is that a hypothetical seasonal swing trade in sugar had an annual average return of 14% for 37 years (being long in October, November, January and short in February, April, August, September).

Consider this as an indicator and not a strategy: the moves against the historical trend may be strong. I think that investment strategies should be based not only on returns but also on probabilities (my methodology here).

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