Seasonality: Harvests and Heating Season
Grain is harvested once a year and natural gas is used most in winter. Seasons give supply and demand a rhythm, and prices and inventories rise and fall with it.
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Text version · Physical Commodities, lesson 7: “Seasonality: Harvests and Heating Season”
Grain is harvested once a year and natural gas is used most in winter. Seasons give supply and demand a rhythm, and prices and inventories rise and fall with it.
Grain: one harvest a year
Corn and soybeans are harvested in autumn; once the new crop hits the market, inventory jumps and prices tend to be weak. By the next summer, old stocks are nearly gone and the new crop is still in the field, so prices are more likely to rise.
Natural gas: tightest in winter
Natural gas use is low in summer and autumn, so the extra gas is injected into storage; heating demand soars in winter and storage is drawn down heavily. That's why contracts for winter delivery usually cost more than summer ones.
Patterns aren't guarantees
seasonality is common knowledge and is usually already priced into forward prices. What really pushes prices far off course are weather surprises nobody can predict in advance, like harsh winters and droughts.
Key takeaways
- Crops flood the market at harvest, so supply is plentiful and prices tend to be soft; they're more likely to rise in the lean months before the next harvest.
- Natural gas is injected into storage in summer and autumn and drawn heavily in winter, so winter contracts usually cost more than summer ones.
- Seasonal patterns are well known and usually already priced into forward prices, so they're no guaranteed signal.
- Weather surprises (a harsh winter, a drought) can push a given year far from the seasonal average.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Pick “Natural gas” and press ▶ to play a year: which month has the highest price index? Which month has the lowest inventory?
- Switch to “Corn” and click “Jump to October harvest”: what are the inventory and price index? Which month is the “Cheapest of the year”?
- In “Corn”, click “Summer drought”: does the autumn price still fall back like in a normal year (dashed line)? How much lower is inventory?
- Go back to “Natural gas”, click “Harsh winter” and play: how much higher is January's price index than in a normal year?
Quiz and explanations
- 1. During the Northern Hemisphere corn harvest, spot prices are usually…
- Answer: Soft, because new crop floods the market.Supply jumps all at once, so prices tend to come under pressure.
- 2. In which season are US natural gas inventories usually drawn down heavily?
- Answer: Winter.Heating demand peaks in winter, so inventories are drawn down steadily.
- 3. If seasonal patterns are common knowledge, why can't you profit every year by "buying before winter and selling in winter"?
- Answer: The pattern is already in forward prices, and weather surprises break it.A pattern everyone knows gets priced in ahead of time. What's left is uncertainty like the weather.
Terms in this lesson
- inventory (Inventory): Goods produced but not yet consumed; rising stocks mean oversupply, falling stocks mean strong demand.
- seasonality (Seasonality): Supply and demand for some commodities follow the seasons, such as grain supply peaking at harvest or heating gas demand rising in winter; it's a tendency, not a guarantee.