A line of credit is essential unless you have pockets deep enough that you should be enjoying a beach somewhere near the equator instead of hedging. The line amount should be more than you can ever imagine needing with a long talk with the banker about the possibility of the amount being increased in case of extra ordinary circumstances.

The banker also needs to be assured the line will be used for true hedging only and not speculation. As long as you are hedged and have the potential crops to back it up for collateral and crop insurance to guarantee the bushels or the cash equivalent proceeds then his collateral position should stay in tact.

The other thing to do is have a plan written out in a spread sheet with the potential number of contracts you may be hedging and a matrix of possible margin requirements based on different price levels in case the market goes against you. Don't forget to add in the initial or maintenance margin amount. You can't come up with an exact number here as maintenance margin requirements can change with volatility but can get close enough. This spread sheet will be good information for both you and the banker. You will know the potential position you are getting in and the banker will have an idea of what he is loaning money for.

The final thing to remember is if the market does go against you as you unwind the position as the grain is harvested and sold, be sure to pay back the margin account bushel for bushel as the sales are made.

If a person starts to speculate and looses a bunch of money or if the grain is sold and a big margin line amount is still owed but the money all gone that most likely will be the end of the banker financing a margin account.

Hedging works if it is done by the book.

John