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2010issue C1114-19

Corn and wheat staggered calendars as dollar-neutral seasonal spreads

The archive maps a staggered US Midwest crop calendar onto two seasonal-holding-window procedures. Each window is a dollar-neutral-grain-spread aligned with one crop's supply-doubt-window and measured by close-to-close-evaluation, without path-dependent exits or cost adjustments.

  • In the US Midwest calendar used here, corn is planted in spring and harvested in autumn, while wheat is planted from mid-August through October and harvested from mid-May through mid-July of the following year.
  • Peak supply uncertainty is placed in late winter through early spring for corn and from midsummer through early autumn for wheat, because those intervals sit before the relevant crop is established in the ground.
  • Two seasonal-holding-windows implement dollar-neutral-grain-spreads: short May wheat against long May corn from the fifth trading day of February through the sixth trading day of April, then long December wheat against short December corn from the 14th trading day of June through the 17th trading day of October.
  • The historical procedure used close-to-close-evaluation with no slippage, commission, stop-loss, or profit-target rules, and still treated a 10-contract wheat position plus a dollar-matched corn position as a material capital commitment even under spread-margin.
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Staggered plant and harvest dates

In the US Midwest crop calendar used in the case study, corn is planted in spring and harvested in autumn. Wheat is planted from mid-August through October and harvested from mid-May through mid-July of the following year.

Those staggered dates set a crop-calendar-regime: a weeks-to-months market state defined by whether the next harvest is still unplanted and uncertain or already becoming measurable.

Where supply doubt sits

Peak supply uncertainty is placed in late winter through early spring for corn and from midsummer through early autumn for wheat. Those intervals sit before the relevant crop is established in the ground.

Each interval is a supply-doubt-window: the period before a crop is established in the ground, when the coming harvest cannot yet be sized with confidence.

The seasonal-analysis premise

The seasonal-analysis premise is that a grain's price is more likely to firm while the next crop is still in doubt and more likely to ease once harvest size is widely known and earlier uncertainty has faded.

The February to April window

One specified seasonal-holding-window opens at the close of the fifth trading day of February and closes at the close of the sixth trading day of April. A seasonal-holding-window is a fixed calendar interval, marked by counted trading days, that defines entry, exit, and abstention as one procedure.

The window is implemented as short May wheat futures against a roughly dollar-matched long May corn futures position.

Sizing the dollar-neutral-grain-spread

Both listed grain contracts were treated as worth $50 per one-cent move. The corn lot count was obtained by dividing the notional of a 10-contract wheat position by the notional of one corn contract and rounding to a whole number of contracts.

That rule produces a dollar-neutral-grain-spread: a paired long and short futures position sized so the two notionals are approximately equal after rounding to whole contracts.

The June to October window

A second seasonal-holding-window opens at the close of the 14th trading day of June and closes at the close of the 17th trading day of October. It is implemented as long December wheat against a roughly dollar-matched short December corn position.

Close-to-close-evaluation

The historical procedure applied neither slippage and commission adjustments nor stop-loss or profit-target exits. Mark-to-market swings inside a window could have exceeded that window's close-to-close result.

That design is a close-to-close-evaluation: a window measured only from the entry close to the exit close, without modeling stops, targets, slippage, or path-dependent equity.

Spread-margin and remaining exposure

Outright margin on both legs was described as larger than the reduced spread-margin available when the two positions offset some risk. Spread-margin is collateral charged on the combined pair rather than on each outright leg, reflecting partial offset between the two grains. That spread requirement was said to vary with price level and volatility.

Combining both calendar windows still left a large notional exposure. A 10-lot wheat position plus a dollar-matched corn position was treated as a material capital and risk commitment even when spread-margin was used.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
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