But first, here are some basic definitions. A spread is simply the price relationship between two or more futures contracts. Futures traders use three basic spread positions: interdelivery (or intramarket) spreads, intermarket spreads, and intercommodity spreads. An interdelivery spread, commonly referred to as an intramarket spread, is the simultaneous purchase of one delivery month of a given futures contract and the sale of another delivery month of the same commodity on the same exchange. At one time, this type of spread was called a calendar spread because the position is based on different calendar months, such as buying July corn and selling December corn.
Intermarket spreads, on the other hand, involve the simultaneous purchase of a given delivery month of a futures contract on one exchange and the simultaneous sale of the same delivery month of the same futures contract on a different exchange. One example would be the purchase of July Chicago Board of Trade (CBOT) wheat and the sale of July Kansas City Board of Trade (KCBT) wheat in the same delivery year.
The final type of spread, and our subject here, is the intercommodity spread. This spread is the simultaneous purchase of a given delivery month of one futures market and the sale of the same delivery month of a different, but related, futures market, such as the purchase of July CBOT wheat and the sale of July CBOT corn futures.
Figure 6 presents the historical returns. This bias is most prevalent in years when wheat is in tight supply and the corn harvest is large, as was the case in 1996 and 1991. Carryover and demand estimates are the two main features to watch prior to and during this bias.
Conclusion
Examining seasonal biases can be fruitful for the astute spread trader. The successful implementation of seasonal trading requires the traders to study the driving force behind typical seasonal behavior and then assess whether the current year falls within the norm or if it is substantially different to warrant a counterseasonal position, or at least not entering the market during the seasonal bias