Psst? Want a Winning Trade?

By Brad Zigler

Real-time Monetary Inflation (per annum): 8.9%

Stocks fell as commodity companies declined on weaker oil and metals prices. Six hours ahead of the COMEX opening, spot gold was slumping nearly $5 an ounce at $954.60. Gold was later fixed in London at $946.50 and, by the time the New York floor session opened, spot month metal had lopped more than $13 off its Friday settlement value.

Tellingly, the London contango ballooned this morning. Twelve-month forward rates jumped 22 basis points (0.22%) from Friday's offer. The last time the contango was that strong was a month ago, when spot was scraping around the $910-$920 level.

U.S. equities were hit hard in overnight trading, led by commodity stocks' reaction to a strengthening greenback.

Still, commodity stocks' relative strength against physical commodities themselves hasn't been upset. The Market Vectors RVE Hard Assets Producers ETF (NYSE Arca: HAP) continues to outdo the GreenHaven exchange-traded fund tracking the Continuous Commodity Index (NYSE Arca: GCC) and the Market Vectors Agribusiness ETF (NYSE Arca: MOO) is faring better than the PowerShares DB Agriculture Fund (NYSE Arca: DBA).

Commodity Stocks' Relative Strength

There are trades in physical commodities, however, that may be just too irresistible for even the most entrenched stock enthusiast.

One is a seasonal corn trade with a perfect win record over the past 20 years. Yes, that's right. It's been a winner each and every year for the last two decades (of course, having now said that, the odds of a reversal in fortunes just increased).

Seekers of immediate gratification aren't likely to enjoy the rest of this column, so I won't be offended if you decide to move to other matters now. The trade in question makes money S-L-O-W-L-Y. And, it doesn't make a lot of money either. At least, not as measured in dollars. Percentagewise, it's been a big winner.

So, what's the deal?

Simply this: Tortoise traders like buying the new crop year March-May bear spread after the second week in June and holding it ‘til mid-February.

CBOT Corn (May '10)

And what's a bear spread? It's a bet on relatively ample supply expectations played out by buying the distant May contract and simultaneously selling the near March delivery.

Right now, the May 2010 contract commands a 7.25-cent-per-bushel premium over the March 2010 future. Friday, June 12, if history repeats itself, would be the spread's seasonal low. At entry, the average spread over the past two decades has been just over 4.25 cents. Nine months later, on average, the premium's widened by more than 3 cents. That translates to a $156 average gain.

Now, I know what you're thinking: "WHAT?? $156 gain for a nine-month commodity trade? That's not even lunch money!"

True, ‘dat. You're making, in fact, less than 63 cents a day in profits. That's about four-fifths of a basic McDonald's burger.

But think of this. You'd only have to put up $68 in margin (at exchange minimums) to play the spread. Which means the return on margin is 230%. Put on a brace of these spreads, and your gains (well, your past gains, anyway) could get you a T-bone lunch at Morton's.

Despite the spread's perfect track record, all is not sweetness and light during the trade's tenure. Drawdowns have occurred in mid-trade. They've not been bad drawdowns, though. A bit more than 1.75 cents a bushel on average.

Seems to me a corn bear spread's not a bad way to earn a February lunch.