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Crush spread
- Thread starter shamrock
- Start date
Soybeans are not used until they are processed. In involves crushing the beans and obtaining the by-products, oil and meal. A bushel of beans weights 60 pounds on average. When processed, it will yield about 11 lbs. of crude soybean oil and 48 lbs, of meal. The one pound remaining is waste by-product.
This formula allows traders to calculate cost versus income by using the Gross Processing margin (GPM) - the measurement of the difference between the acquisition cost of the soybeans and the combined value of the processed bean oil and meal.
Traders use the bean oil meal spread, at times there is no or little profit in crushing beans and the traders can put on a spread expecting it to widen.
The reverse crush can be done at 1-1-1 contract basis but the well ballanced reverse crush is selling 10 contracts of beans, buying 9 contract of oil and 12 contract of meals = involving 31 futures contracts.
This formula allows traders to calculate cost versus income by using the Gross Processing margin (GPM) - the measurement of the difference between the acquisition cost of the soybeans and the combined value of the processed bean oil and meal.
Traders use the bean oil meal spread, at times there is no or little profit in crushing beans and the traders can put on a spread expecting it to widen.
The reverse crush can be done at 1-1-1 contract basis but the well ballanced reverse crush is selling 10 contracts of beans, buying 9 contract of oil and 12 contract of meals = involving 31 futures contracts.
From what I understand the CBOT has the grain spreads eagled in overnight trade and I would imagine they will do the same with RTH if they offered them side-by-side. That means if the outrights are offering a better indicative spread trade the order will be filled at those prices. In other words, it is tougher to spread these markets, same thing occurs in Eurodollars.
The reverse crush spread works seasonally and it is rather reliable for the reasons bellow;
1) The farmer sells his old crop beans to meet June July bills,
2) During the fall newly harvested beans tend to depress the soybean prices relative to the soybean products which remain stable in price during this time,
3) Brazilian soybean supplies decline during the November-February period,
4) Export demand for oil and meal increases prior the closing of the Great lakes shipping due to freezing over
5) Users of animal feed in the US and Europe accumulate contracts for future delivery of feed and thus support the bean meal futures.
..The trade....
Long January meal & oil and short january beans
should be entered around early June at 30 cents or below - ideal best trade is at 20 cents/below.... exit in Nov or early Dec. for reasons stated above.
mcurto,
the real not electronic markets spreads traded as actuals in the pit by a local who makes the markets in them for all,
a trade should be entered as the differential as seen bellow and hence avoid funny business with prices and fills. This used to work as such when I traded spreads and I imagine it still works. Forget this is you trade the electronic stuff however.
1) The farmer sells his old crop beans to meet June July bills,
2) During the fall newly harvested beans tend to depress the soybean prices relative to the soybean products which remain stable in price during this time,
3) Brazilian soybean supplies decline during the November-February period,
4) Export demand for oil and meal increases prior the closing of the Great lakes shipping due to freezing over
5) Users of animal feed in the US and Europe accumulate contracts for future delivery of feed and thus support the bean meal futures.
..The trade....
Long January meal & oil and short january beans
should be entered around early June at 30 cents or below - ideal best trade is at 20 cents/below.... exit in Nov or early Dec. for reasons stated above.
mcurto,
the real not electronic markets spreads traded as actuals in the pit by a local who makes the markets in them for all,
a trade should be entered as the differential as seen bellow and hence avoid funny business with prices and fills. This used to work as such when I traded spreads and I imagine it still works. Forget this is you trade the electronic stuff however.
Quote from mcurto:
From what I understand the CBOT has the grain spreads eagled in overnight trade and I would imagine they will do the same with RTH if they offered them side-by-side. That means if the outrights are offering a better indicative spread trade the order will be filled at those prices. In other words, it is tougher to spread these markets, same thing occurs in Eurodollars.