ost commodities are believed to be subject to noticeable seasonal effects M attributable to supply and demand variations. Seasonal effects are defined here as repetitive, 12-month cyclical price fluctuations arising from similar changes in supply and demand from year to year. The shape and magnitude of the seasonal price variations depend to a great extent upon the nature of the production cycle, demand for the commodity, and the availability and practicality of storage.
It is important to state that this study deals only in 12-month seasonal effects although some commodities are known to have growing or production cycles of longer or shorter duration. During later periodogram tests it will be apparent that the 12-month period is not always appropriate, but for this study we will restrict the analysis to 12-month intervals.
Seasonal price fluctuations of agricultural commodities tend to vary inversely with the normal pattern of the production cycle. Seasonal prices generally reach their lowest points during harvest or peak availability periods, and then tend to rise gradually and peak just a few months before the next harvest begins. Under stable supply and demand conditions, the price fluctuations are generally less severe for commodities which are easily stored and, in these cases, seasonal price differences theoretically reflect the storage and handling costs.
The seasonal price variations of other nonagricultural commodities are the result of cyclical demand by manufacturers and consumers. Prices for commodities with relatively stable levels of production throughout the year generally respond to changes in demand since the supply tends to remain somewhat fixed.
Two such examples are platinum and lumber, commodities which are subject to demand resulting from seasonal auto manufacturing and housing construction cycles.