I hope you are considering tax implications when you sell cash beans at harvest, and buy paper beans.  They are treated differently, depending on whether they are a hedge or a speculation, should there be a loss.  As long as you sell paper with a profit, there is no problem.  I should let Jake explain this, he knows so much more about taxes.

My experience on buying beans on paper has been profitable, but the possibility of making a speculative loss which would only allow me to deduct 15% of the loss made me nervous.  True, you can carry over your loss to other years, but it is still not the same.

Some tax practitioners will argue that a purchase to replace a sale is a hedge for a farmer, but in the University of Illinois tax school I attended every year for many years, the auditors or former auditors that taught the class would practically scream that any purchase of paper by a farmer is speculation, and is to be treated as such.

I'm not saying a person should not sell cash beans and buy paper, I have done it several times, properly documented, it might pass an audit as a hedge.  If you are not audited, there is no problem, but do you really want to take that chance?

My problem is that many brokers will keep spouting the line that paper beans and cash beans are the same thing.  I have heard it over and over during marketing meetings.  The risks involved are much different, therefore, it is not the same thing.

Just be prepared, if you have a loss on purchased paper beans, to have some unpleasant experiences if audited and you run into the wrong auditor.