Mind the Seasonality in Commodities

Seasonality plays a critical role in commodities, as different seasons can significantly influence the behavior and price dynamics of assets like natural gas. For instance, natural gas exhibits distinct performance differences between winter and summer, which can pose risks for traders focused on cross-seasonal spreads. While historical compensation for taking such risks may exist, recent events, like the winter of 2018, highlight the potential for unexpected losses. Traders, especially those transitioning from equity-based strategies, must understand the complexities of seasonality in commodity markets, emphasizing the need for careful analysis when engaging in strategies that involve varying harvests or delivery timelines, as exemplified in the coffee market.