Let crop insurance set the floor
Revenue crop insurance already gives you a price floor on insured bushels, which changes how aggressive your hedge needs to be. Some producers hedge the insured portion with futures or forward contracts and leave the rest for summer rallies, reasoning that the worst case is covered. Others hedge less early because insurance lets them afford to wait. Either way, coordinate the two. Being heavily short futures on top of full insurance in a drought year means watching the market rally while your margin account bleeds, even though the crop failure itself is covered. Futures trading involves substantial risk of loss and is not suitable for all investors.
Why December
CBOT corn trades March, May, July, September, and December. For the crop growing in the field right now, December is the reference month. A harvest-time cash sale against December futures means your futures hedge and your physical sale happen in the same window, which keeps the hedge honest. Selling December corn during the summer locks in the futures portion of your price while you wait to set basis with your local buyer.
The December contract also carries the market's collective judgment about new crop supply. Old crop months like July reflect what is left in the bin; December reflects what is still in the field. That is why old crop and new crop can move in opposite directions on the same day.
How producers use it
- Sell futures in increments. Price a percentage of expected production as rallies develop, rather than all at once.
- Buy puts as an alternative. A put sets a floor and leaves the top open, at the cost of the premium.
- Lift the hedge with the cash sale. When you deliver grain or forward contract with an elevator, buy back the futures or let the option expire.
- Respect margin. Short futures require margin and can generate margin calls in a rally. Futures trading involves substantial risk of loss and is not suitable for all investors.
What the hedge does not cover
December futures protect the futures price only. Your local cash bid is futures plus basis, and basis can weaken sharply at harvest even while futures hold steady. It also does not protect yield. Over-hedging a crop that gets hailed out leaves you short futures with no grain to sell, which is why most advisors suggest hedging well under total expected production early in the season. CCS's Scale-In forward contracting program avoids margin calls entirely, which suits producers who want protection without daily settlement risk.