Tracking Risk Premium
Seasons In Soybeans
Year after year, the Earth turns around its axis, producing
trading opportunities you can exploit with technical tools.
by Scott Barrie
Seasonality and technical analysis can be a
powerful combination. Traders who
understand the natural supply and demand
cycles in the commodities markets can
anticipate market turns more precisely, helping
them isolate good trading situations and avoid poor ones. Here’s a practical application: tracking risk
premium in the soybean market.
Soybean prices change based on the perception of future
supply. The amount of change is called risk premium.
When future supply is perceived to be limited, futures
markets tend to build risk premium into prices; thus, prices
are higher than would be expected based on present supply
and usage patterns. As the perception of future supply
becomes clearer, prices return to a lower level more
consistent with supply and usage patterns.