Kub's Den

By Elaine Kub
DTN Contributing Analyst

Farmers, tell me if this scenario seems familiar:

You’re standing in one of your fields, noting how the plants have popped out of the ground in beautiful green rows, and it occurs to you that, yes, there actually will be a lot of grain to sell this year. More grain than you already have hedged on the books. Decades of experience have convinced you that prices will tend to dwindle lower and lower toward harvest, so you know you’d like to make some sales here this month or maybe next month, or sometime, you guess, but anyway, you know you ought to do it soon. Or sometime. Maybe. You guess.

So you look at the new-crop cash prices on offer at your local elevator one day — $3.38 for corn and $8.89 for soybeans — and you think, "Hmm. That ain’t so great. I’ll wait and see if it goes up a couple cents tomorrow. I’d like to get $3.40, at least. Maybe $9 for the beans."

You put off the sales until the next day, when you go to look at the prices again. Now they’re $3.37 and $8.86. "Hmm," you think, "Well, at least they’re not going down too fast. I’ll wait."

And you wait another day, and another day, and so on and so on in this universal pattern of procrastination, until it’s nearly October and the idea of selling cash corn anywhere near a $3.40 price tag seems like something from a dimly remembered sweet dream.

If only there had been some clear signal from the heavens! Something to convince you, once and for all, that THIS is the hour. TODAY is the day. Many occupations have such clear guidelines. Airline pilots must try to get their flights into their scheduled gates at a specific minute of the hour. College professors must assign each student a final grade and report that grade at the end of each semester. CEOs of publicly traded companies have quarterly earnings reports that must be filed on certain dates each year. Journalists, of course, have deadlines. But farmers can procrastinate as long as their bankers will let them. They can pick any business day among an entire year of days to price their grain. When the markets are muddled and seem to be moving nowhere but sideways, how should a farmer pick that day?

One guideline might be the futures trading volume. This quantity isn’t steady from day to day; rather, it occurs in spurts. On Monday, May 1, for instance, over 96,000 December corn futures trades were made — 3 1/2 times as many as were transacted on a quieter random day, like Friday, May 12. It’s interesting to note that high-volume days do tend to coincide with the chart’s pivot points — a flurry of activity will frequently occur right when the market is hitting a short-term high or short-term low. So, if a high-volume day occurs after a steady stream of losses, it may turn out to be the worst day to sell (or the best day to buy). But not always.

After examining data from the past couple of years, I can definitively say that the day of the week with the highest average corn futures trading volume has been Tuesdays, when traders tend to be 15% more active (across several contracts) than they are on Wednesdays. I can’t guarantee that just because it’s true on average, it will always be true on the week that you may feel like selling some grain. Furthermore, even if high trading volume does happen to occur on that particular Tuesday of that particular week, I can’t guarantee that high trading volume will translate into a high grain price. Tuesdays were also the day of the week with the highest average volatility numbers, but that could as easily be downward volatility as upside volatility.

Now, from painful personal experience, I know that a person can decide "Today is the day to sell grain," and still sit staring at a flickering computer screen as hour after hour ticks by and the mythical perfect moment to hit ‘Sell’ never makes itself quite clear. So I took this exercise a step further and examined December corn trading volumes every half hour from the past two months. There is one timeframe that far outstrips any other — the first half hour once the markets re-open in the morning.

Almost twice as many new-crop corn futures contracts are traded between 8:30 and 9:00 in the morning (Central Time) than during any other half-hour period during the average day. It goes like this: On average, over 4,000 December corn futures contracts are traded during that half hour, then about 2,000 contracts for each half hour until about noon, then a burst of about 2,500 contracts traded right around the close of the day session. During the overnight session, it’s more like 20 to 100 December corn futures contracts traded during any half hour.

Again, a study of how trading volumes tend to aggregate on certain days and at certain hours is emphatically NOT a guarantee — not by any stretch of statistics — of positive price movement. But if all you need is a specific moment in time to serve as your decision moment, then may I suggest setting an alarm for Tuesday at 8:30 in the morning? In today’s low-volatility grain markets, it may be as good a time as any.


Editor’s Note: Elaine Kub is the author of "Mastering the Grain Markets: How Profits Are Really Made" and can be reached at elaine@masteringthegrainmarkets.com or on Twitter @elainekub.