WEATHER SENSITIVITY

admin — Wed, 22 Apr 2009 16:55:15 +0000

The effects of changes in weather, especially extremes in weather, are an inseparable part of seasonal effects. Without weather, the price of an agricultural commodity would lack the surprises that cause them to jump around during the growing period. Once planted, you would have a very good idea of the expected supply; one half of the supply-demand equation would be constant each year.
Each agricultural product has its own particular sensitivity to weather. Grain planting can be delayed due to rain, causing some farmers to switch from corn to soybeans; hot weather during pollination will significantly reduce yields; a freeze in September can stop the ripening process and damage production. Freezes are of greater concern than droughts and affect more products. In general, patterns for crop sensitivity to weather depend upon their location in the Northern or Southern Hemisphere. Active trade between world markets shows that crops grown primarily in the Northern Hemisphere are allected by weather developments in the Southern Hemisphere.

THE SEASONAL PATTERN

admin — Wed, 22 Apr 2009 10:52:44 +0000

Seasonal patterns are easier to find than the longer-term cycles or economic trends, because they must repeat each calendar year. Although any 12-month period can he used to find the seasonal pattern, academic studies usually begin with the new crop year for grains, just following harvest, when prices tend to be lowest. This approach will make the carrying charges, which increase steadily throughout the new crop year, more apparent. For uniformity, the examples in this post will always begin with a calendar year. which assumes no knowledge of where the season starts, and can be equally applied to stocks. it will always include carrying charges as an integral part of the market price.
United States agricultural production is considered to be the standard for seasonal. even though a wheat crop is harvested continuously throughout the year in different parts of the world. Prices are expected to he lower during the U.S. harvest and highest during the middle of the growing season. The influence of world stocks and anticipated harvest from other major producers in South America or Russia will cause an overall dampening or inflating of prices, rather than change the seasonal pattern. While the costs of transporting grain to the United States is not practical, except for special products. each purchaser in the world market will select a supplier at the best price. This fungibility has a direct impact on the U.S. market, which must alter its local price based on export demand.
Industrial commodities have seasonal price variation based on demand. Silver, although increasingly used in electronics as a conductor, is also consumed for jewelry, and photography, and has served as a general hedge against inflation. It still shows a seasonal pattern of greater demand during the summer months. Almost half of all copper is used in electrical and heat conductivity, with much of it in the form of an alloy with nickel and silver. its seasonality is heavily related to the housing industry, where it is required for both electrical and water systems. New sources of ore are introduced infrequently, and the possibility of discovery or expansion is rarely seen in price movement as short-term anticipation. The primary supply problems in copper are related to labor as well as social and political changes in producing countries.
There are many businesses with finished products that have seasonal demand and their publicly traded stock prices will reflect that tendency~ Because the shares in a company are far removed from buying and selling the raw materials that they use, even major oil companies, such as Exxon, may not show a seasonal pattern similar to crude oil or its refined products. As with Eastman Kodak, these firms have thoroughly diversified. and the impact of a $ 1.00 increase in a barrel of oil or a $50 increase in an ounce of silver will have only a small effect on the profitability of the firm, and may be the cause of stock prices advancing or declining. Yet some industries, such as airlines, still show seasonal patterns, and the same procedures given here can be used to find them.

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WEATHER SENSITIVITY

THE SEASONAL PATTERN