How Types of Crush Spreads Work as a Profit Margin Measurement
A key component in the soybean market is what is known as the "crush" spread. Soybeans are processed into two products – soybean meal and soybean oil, and this process is known as “crushing.” The crush spread is the difference between the combined value of the products and the value of the soybeans. It is a measurement of the profit margin for the soybean processor. The soybean processor will be interested in the crush spread as part of its hedging strategy, and the speculator will look at the crush spread for trading opportunities. This strategy paper looks at crush spreads using CBOT Soybean futures and Dalian Commodity Exchange (DCE) Soybean Oil and Soybean Meal futures. It walks you through how different types of crush spreads work using a range of pricing examples.
In a crush spread, the trader takes a long position in soybean futures against short positions in soybean meal futures and soybean oil futures. The spread’s value represents the gross processing margin from crushing soybeans.
The CBOT Soybeans vs. DCE Soybean Meal and Soybean Oil – Crush Spread report includes:
- DCE and CBOT contract comparisons
- Protein meal specifications differ
- Bushels/metric tons per contract differ
- CBOT-DCE Soybean Crush hedge examples
- How to use the 1:11:2 crush ratio as a hedge with a narrowing margin or a widening margin
- Five years of crush spread charts
- The values of the July CBOT Soybean/September DCE Product and the November CBOT Soybean/January DCE Product crush spreads
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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.
