Commodities I.

Bubblevision is really talking up this crop report, which is very important, no doubt. But if you're a commodity trader, after this report and a couple days of adjustments, the grain markets become a weather market. Summer weather expectations will dominate price moves until the crops are made.

OK, if you're not a commodity trader but want to try it out, here's some advice.

First, don't. No joke. You can expect to lose money for awhile while you learn. And if you don't listen to my later advice on position size, you'll blow up & lose a LOT of your trading capital. Unfortunately I've seen this exact scenario play out over the past year or so for an acquaintance who ignored my advice on position size - very sad. In my own experience, I lost the price of a business school education in the mid-1980s learning. I've done very well since then, but that was painful.

OK, so you want to do it. Operationally, find a discount broker & start small. I use XpressTrade which is now part of OptionsExpress. They have enough free research & decent chart capabilities. I use the advanced commodities service of barchart.com for longer term charts & spreads ($20/month). I pay eSignal for realtime quotes on the various exchanges I trade - commodity quotes are fairly steep as there are many exchanges seeking to get a little of your blood. It's good having eSignal for both stocks & commodities. You can put a lot of your capital in T-bills (stagger the maturities so you can let some run off if you need the cash for draws or , uh, losses). I keep about 80% capital in T-bills & have them staggered to mature every week so IF I screw up I can get $$$ cash fast (that has not happened, thank goodness).

Position size. Ignore the actual margin for the positions. You should NEVER get close to hitting those limits. Margin is just "assurance" money you have to assure the exchange you'll pay your losses. Every evening the gains & losses are cleared in CASH. Focus on the true $ value of your position. For corn, the contract is 5,000 bushels. At $4/bushel, that's $20,000. If you trade 10 contracts, that's $200,000. You bear the losses on $200,000 of corn. If corn goes limit up this morning IIFF the crop report shows farmers are only planting 85 million acres, it was go up 20 cents - a one way, non-stop elevator ride - no exit or entry. It will then probably go limit up Monday, too, for a 10% move like when earnings come out for a stock. If you were short, you just lost 40 cents on 50,000 bushels, or $20,000. This is why position size is so important and so deceptive. The initial margin on those 10 contracts was only $1,485/contract, or $14,850 for your 10 contracts.

YOU MUST create a spreadsheet to monitor position size. I almost never go over 5:1 leverage. When active, I try to keep it at 3:1. I might go to 5:1 if I have some relatively uncorrelated positions, like T-Notes plus grains and coffee.

In truth, I love commodity trading. I love to think about the fundamentals & interrelationships, the roles of the beefers and commercial traders, and the charts to figure out a trade to try out. It's predicting the future. And they are ALL TRADES. There is NO "investing" in commodities - only speculation. You gotta get out when "they" ring the bell. LOLOLOL. Ok, that's when a technical sell signal occurs or all the news you expect is in. Because the beefers sell on the way down. Get out of their way, fast.

PS: a benefit of having a futures account is that you never have to worry about getting SPY or QQQQ or IWM to borrow for shorts - you can ALWAYS short the e-mini futures.