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Make Your Money Work as Hard As You Do

The more experienced I get, the more I have promoted the concept of using one's futures account to make the most money with the least risk. No more simply "by the book" use of futures. Just because you raise only corn and beans does not mean you cannot take advantage of other opportunities in other commodities.

Likewise, just because you may have sold cash corn or beans and wanted to re-own those bushels in the futures market does not necessarily make those two commodities the best investment. Here we are January 2021, is buying bean futures at $14 and corn at $5.40 to offset cash sales a wise decision?

Furthermore, as hard as we all work for our money, all of us need to make our money work just as hard for us.

If you buy or sell corn in the futures market, that ties up $1200 or so per contract of margin money.

If you buy or sell beans in the futures market, that ties up $2000 or so per contract of margin money.

If you buy or sell CBOT wheat in the futures market, that ties up $1500 margin money or so per contract.

"Spread margins" refer to the margin deposit needed to be long (buy) one commodity and short (short) another.

Spread margins are less than the sum of the two commodity margin requirements because the financial risk of the spread is less than being long a contract of two commodities or short a contract of two commodities.

Thus, if you up tie-up $2000 to buy one soybean contract, you can sell a corn or CBOT wheat contract without being required to deposit any additional margin money.

What do you gain?

You now have the opportunity to make money two ways using the same margin dollars required to make money just one way. That is sweet!

Just because you sold your cash beans and want to re-own them in the futures market does not mean you cannot use that same margin money to sell corn or wheat.

USDA is predicting the tightest soybean carryout in modern times and the largest corn carryout in 33 years last spring is suddenly uncomfortably tight. Meanwhile, the USDA predicts on May 31st, the world wheat carryout will be larger than ever before. Winter wheat acreage planted around the world in 2020 was larger than more than in five years, maybe ten years.

Think about which commodity has the best chance to move higher and which one has the best chance to falter?

From early December to the third week in June, the seasonal trend is up on corn.

The seasonal trend is up for beans from the middle of February to the second week in July.

The seasonal trend is down on wheat from January to the second week of July and then another leg down into the fall.

Prices do not follow the seasonal trend every year; if it did, we all would be rich. The low for the year on corn and beans in 2020 was made April 21st. The low for corn and beans in 2019 was May 13th. The high for CBOT wheat in 2020 was January 22nd and it looks like the high here in 2021 was January 15th.

So, seasonal trend is up for corn and up for beans into late June to early July. The seasonal trend is down on wheat from January to July.

Do you see the opportunity there right now?

Obviously, every year can be different and one has to look at more than the seasonal trend, but when we get to early September and you are already short beans and/or corn, seriously consider buying wheat for little or no more margin money to go with your short corn and beans.

Every winter, when wheat is at its contract high and corn and beans are near their winter lows and you want to re-own cash bean and corn sales, I highly recommend you look at selling (spreading) CBOT wheat against your long (buy) row crops.

Make your money work double time with spread positions. Be long something when its seasonal trend is up and short something at the same time when its seasonal trend is down.

When it comes to making money, use the markets with the best chance to make you money, which, which for a row crop farmer who is also futures trader, includes a heck of lot more opportunities than just corn and beans.

Make Your Money Work As Hard As You Do
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