Brokerage Firms for Farm Hedging 1/1/26

Isaac asked:

"How do you know if it is ok to hedge using like Schwab or another brokerage account firm? Or do you need to use like a RJ O’Brien or StoneX  platform? Thanks"

Good Afternoon.

The brokerage firms whose primary business is trading stocks usually have futures brokerage available, but they generally look at futures traders as third class investors who have no common sense and, therefore, discourage futures trading with high "house margins" and high commissions coupled with poor service.

Brokerage firms whose primary or only business is futures trading treat their customers with a lot more respect.

The futures exchanges require a deposit of cash (called margin) for every contract a given brokerage firm has open on the exchange. The margin amount the futures exchanges require brokerage firms to deposit are called "exchange minimums." The brokerage firm will require its customer (you, for example) to deposit margin in his trading account with that brokerage firm equal to or more than the exchange minimums.

The brokerage firms are allowed to require their clients to deposit any amount of money per contract it so desires. It might be the same as exchange minimums or twice, three times or hundred times more than exchange minimums. Last summer, a client asked his stock brokerage firm to open a futures trading account, and they said he would have to deposit $100,000 in his account before he could make a trade. Forty years ago, Merrill Lynch's house margin for a corn contract was $6,000 when the exchange minimum was just $350.       

Initial margin is the amount of money required to be on deposit to initiate a futures position. Maintenance margin is the minimum amount that must be in the account to maintain the position. If the equity in the account goes below the maintenance margin, the trader must deposit enough money to bring the equity in the account to the initial margin amount.   

Margin requirements change as the value of the commodity and volatility changes, The margin for hedge accounts are less than speculative trading accounts. Why? Hedgers have the real commodity; speculators do not. 

Right now, the exchange minimums are:

Speculative Account

• Corn: Initial $1,073, maintenance $975

• Soybeans: $2,200, $2,000

• Wheat: $1,815, $1,650

• Hard Red Winter Wheat: $1,760, $1,600

• Hard Red Spring Wheat: $1,650, $1,500

I do not know the hedge margins, but it would be about $100 less for corn, maybe $200 less for soybeans.

When you contact a broker with any brokerage firm, ask what house margin requirement for the commodities you want to trade. If it is more than exchange minimums, I recommend you end the conversation rather quickly and contact another brokerage firm.

There are several ag oriented brokerages with house margins equal to exchange minimums. That is what you want.

Secondly, ask what the commissions are for a round turn (buy and sell or sell and buy). A typical full service brokerage firm will charge $75 per contract, which is 1½¢ per bushel. A full service firm is one where you can talk to your broker about markets and place orders over the phone with your broker. Since grains trade all night, be sure to ask about how one would place an order in the evening or even in the middle of the night.

Lastly, and most importantly, use a broker who will not lie to you to generate commissions.  Futures trading is a commission business. They only make money if your account generates commission. In the early 1980’s, I was a commodity broker for almost 4 years when I got a new boss. He ordered me to lie to my clients to scare them into liquidating their futures position. That was my last day as a futures broker.  My experience has been that most, certainly not all, brokers who work out of Chicago are liars. Brokers away from Chicago and in the small towns are much more likely to be straight shooters.

We know of three brokers who will not lie to you. We are not saying they are the only honest brokers, but they are the only honest brokers we know of. You can ask other farmers who they would recommend and most certainly talk to them to get "feel" for their personality, knowledge and house margins, commissions.

Start with Schwab if you have an account with them. If Schwab’s house margins and commissions are reasonable, start with them if they have a broker that will be your broker with whom you can build a relationship.

I have attached a list of the three brokers we recommend. Click the button to download the file.

Also, I recommend you read this article:  https://www.wrightonthemarket.com/post/how-money-flows-on-a-futures-transaction

Give me a call if you have more questions along the way.

Brokers Commodity Futures.docx

Download DOCX • 17KB

Every day, every place in the world has a ten day weather forecast issued many weather services.

By a "place", we mean a Findlay, Ohio; Arcadia, Minnesota; Atlantic, Iowa; Fullerton, Nebraska; Cordoba, Argentina; Craig, Colorado, Saratov, Russia and ten million localities we have never heard of.

The ten day forecast predicts the high and low temperature for each day as well as whether or not rain is predicted for each of the ten days, likewise cloudy, partly cloudy, sunny, etc.

We look at the ten-day forecast and if we see rain is predicted for 4 of the next 10 days, we record a "4" for that location on the chart for the today. It does not matter whether it is one-hundredth of an inch or 5 inches. We realize about half the days expected to receive rain never get rain that day, but we must be consistent in what we report each day and every day because rain makes grain a few key weeks of the growing season. Of course, we scan the temperatures and the amounts of rain just to see if anything is getting way out of the norm.