I made the case yesterday that corn should move higher over the next couple of weeks, if not months. I would not recommend making physical corn sales at the present time.... at least until the January WASDE report. I think the potential exists for a pretty strong rally should the dollar finally drop into a daily cycle low.
Oil on the other hand is at a level I feel comfortable selling. I wish to diagram a plan which is similar to the plan I recommended last summer with great success to take advantage of this extreme spread between oil and corn. What we want to do is to capture a spread as corn prices slowly rise and oil prices rapidly fall.
My recommendation is to place a synthetic hedge today on your corn using crude oil as a vehicle. I am expecting to keep this hedge in place for probably at least two weeks. The position size is interpolated to make the oil contract the same in size as the corn contract margin wise, so one oil position is roughly the same as 3.55 corn contracts, or 17,750 bushels. Below are the contract specs you need to know.
So, for every 17,750 bushels of corn you expect to grow, you would want to sell one oil contract. You would keep the stop at 57.50 (using December for this example). The stop would mean that for every contract, you are risking no more than $650, or .037 per bushel.
So the strategy is simply that you are hedging 17,750 bushels of corn per contract using oil as your vehicle, and you are limiting the risk using a stop at the previous contract high.
How far this hedge can go will largely depend on what happens in the stock market. If you had read yesterday's post, you would know that I believe there are too many factors working against the Dow breaking much above 20,000. If it does, it will probably carry oil along with it and you would get stopped out with a small loss. My expectation however is that we are at tops in stocks and oil. A reasonable retracement in oil with a major pull back in stocks would probably be $51 which is at the 200 day moving average. If this happens, your "hedge" would yield you a $5.85 gain per barrel, $5,850 per contract, or .33 per bushel of your corn. If this is an intermediate cycle low in oil looming, it would mean more than that.
To do this, you need a brokerage account. Feel free to borrow this strategy to use on your own. If you have any questions, feel free to email or call me at 270-234-6074. If you need a brokerage account, I can help with that also.