Board Crush Margin

A

amsterdam

Can someone explain the factors in the board crush margin calculation:

For example, in Soy it's:
2.2*ZMZ13(sb meal) + 11*ZLZ (sbo) - ZSF14

For Canola:
ZLF14 (SBO) * 9.700 + ZMF13 (SOY MEAL) * .6173 - RSF14 (CANOLA SEEDS)

I don't understand the factors.

Also, how does that factor into the basis. I don't understand how a firm can still generate a profit on a negative basis trade - apparently that's linked to the board crush margin.

I'd be very grateful for anyone who can explain this for me.

Also, (I know i'm asking a lot) - how can one pull up charts on bloomberg of board crush margins??
 
Quote from amsterdam:
----explain the factors in the board crush margin calculation....
----in Soy it's....
----2.2*ZMZ13(sb meal) + 11*ZLZ (sbo) - ZSF14
----For Canola...
More...
1) Do a google search for "soybean crush margin + CME". It has to do with reducing pounds and tons to bushels. :)
2) For commercial crushing purposes, the contract month for the meal and the oil can be the same or later/deferred compared to the soybeans. Your example above with December13 meal and oil versus January14 soybeans is a "reverse crush". You can't physically get beans back from the meal and oil. For speculative trading, you can trade whatever combination of months you want. :cool:
3) The "canola crush" can have a lot of basis risk between the canola price and the soybean price. :eek:
 
Thanks for your answers nazzdack.

For #2.

But what do you mean by reverse crush? Even the CME posts the board crush margin as (meal + oil - seeds).

For commercial purposes, aren't you long seeds and short meal and oil until you deliver them.

So i'm assuming there's a relationship btwn the two. I know for a fact that a crusher looks at the CME board crush margin so i'm not sure what you mean by "reverse"

3. Yes i agree, but it's the closest reciprocating contract. Would corn hold less basis risk?





Quote from nazzdack:

1) Do a google search for "soybean crush margin + CME". It has to do with reducing pounds and tons to bushels. :)
2) For commercial crushing purposes, the contract month for the meal and the oil can be the same or later/deferred compared to the soybeans. Your example above with December13 meal and oil versus January14 soybeans is a "reverse crush". You can't physically get beans back from the meal and oil. For speculative trading, you can trade whatever combination of months you want. :cool:
3) The "canola crush" can have a lot of basis risk between the canola price and the soybean price. :eek:
More...
 
Quote from amsterdam:
----reverse crush?
----crush margin as (meal + oil - seeds).
----commercial purposes, aren't you long seeds and short meal and oil until you deliver them.
----corn hold less basis risk?
More...
1) To be "short" soybeans AND "long" the meal & oil is to have a "reverse crush" position on. :)
2) With crushing, soybeans you buy now take time to deliver and process. To hedge, you can use the January soybean contract and the January contract for the meal & oil, or a farther deferred month. To be long January2014 soybeans and short December2013 meal & oil can be "goofy" if the beans aren't processed soon enough before the December2013 goes through delivery and expiration. :cool:
3) The basis risk in corn would probably be larger. :eek:
 
1. So wouldn't a crushing plant lock in their crush margin on cbot and then hedge the contracts they progressively take on with their clients?

It's just you seem to indicate that it's done wrong and shld be done differently, i'm just trying to understand this best i can.

2. So what would be the best alternative to price board crush margin for canola? I think even the ICE exchange in winnipeg prices it off soybeans?


Quote from nazzdack:

1) To be "short" soybeans AND "long" the meal & oil is to have a "reverse crush" position on. :)
2) With crushing, soybeans you buy now take time to deliver and process. To hedge, you can use the January soybean contract and the January contract for the meal & oil, or a farther deferred month. To be long January2014 soybeans and short December2013 meal & oil can be "goofy" if the beans aren't processed soon enough before the December2013 goes through delivery and expiration. :cool:
3) The basis risk in corn would probably be larger. :eek:
More...
 
Quote from amsterdam:
----1. So wouldn't....
----2. So what would be the best alternative....
More...
1) You're correct. :)
2) You can attempt to use soybeans as a proxy hedge for canola. Be wary of basis divergences. To have "access" to the cash market can be a better hedge also. :cool:
3) You could petition the CME or ICE to list contracts on "rapeseeds" and "rapeseed meal" in order to have more precise hedging instruments. :D
 
Quote from nazzdack:

3) You could petition the CME or ICE to list contracts on "rapeseeds" and "rapeseed meal" in order to have more precise hedging instruments. :D
More...

ECO on NYSE LIFFE Paris.
 
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