Mistakes When Rolling a Futures Hedge

Rolling a hedge means closing a futures position in one month and opening it in a later month, so the offset stays in place as time passes. The move looks clerical. It has a price, which is the spread between the two months, and it has a few ways to go wrong that have nothing to do with whether your original view was clever. Carry and inversion, the shape of that spread, are described at https://goodsandgrain.trade/futures-curve-carry-and-storage. The hedge itself is not a forecast, a point made at https://goodsandgrain.trade/hedge-is-not-a-forecast.

Rolling without knowing the spread

The cost of a roll is the difference between the month you leave and the month you enter, plus commissions. In a carry market you may be paid to roll a short hedge forward. In an inverted market you may pay. People remember the year they were paid and treat the roll as free. Write the spread down in cents per bushel before you tell the broker to move the position. If you cannot state the spread, you do not know the price of the clerical step.

Do the arithmetic in the same unit as your cash grain. A spread that sounds small in points can be large on the bushels you actually hold.

Rolling a size you no longer have

The hedge should match grain you still have or grain you are still obliged to price. If you have sold some of the cash grain, the futures should shrink with it. Rolling the original size after half the bin is gone doubles the offset on what remains. That extra futures position is a speculation sitting on top of a hedge.

The mirror mistake is letting the hedge expire while the grain is still unsold, because nobody put the roll on a calendar. First notice and expiration are dates. Put them next to the delivery window in the cash contract.

Letting the cash contract roll you in silence

Some basis or hedge-to-arrive style contracts allow the buyer to roll, or require a roll, when the futures month nears expiry. The spread is then no longer your afternoon decision. It is a clause. Read who chooses the new month, how many times a roll is allowed, and what spread is used. A friendly phone call is not that clause.

If you also hold your own futures, make sure you are not rolled twice, once by the buyer and once by your own broker, against the same bushels. Two offsets are not safer than one. They are an extra position.

Margin does not pause for the roll

Closing one month and opening another can both require margin, and a rally during the switch still produces a call. Margin calls are explained at https://goodsandgrain.trade/margin-calls-plain-language. Do not roll on a day when you cannot fund the account, and do not assume the new month's margin equals the old month's. Ask.

Also check that the order was filled as a spread and not as two clumsy separate trades that picked a worse pair of prices. Look at the fill. The confirmation is the roll you actually got.

Write the reason in one line

A clean roll has a sentence: these bushels are still unpriced, the old month is near expiry, and the new month matches the cash sale I expect. If the sentence is really I think the spread will improve if I wait, you are timing a spread, which is a different trade. You may choose to do that. Do not file it under routine hedge maintenance.

This is education about a futures habit, not advice to roll or to hold a position. Contract months, limits, and margin belong in a conversation with your broker.

Frequently asked questions

Is rolling always a small cost?

No. The cost is the spread, and an inverted market can make a short roll expensive. Read the two months before you move.

Should the roll match the cash grain I have left?

Yes. Rolling the original quantity after you have sold part of the grain leaves a futures position larger than the hedge you still need.

Can my buyer roll a contract without me?

Only if the contract says so. Read who may roll, how often, and which price is used. Do not rely on custom.