Crush Spread Math

Discussion in 'Commodity Futures' started by oldtime, Jul 14, 2011.

  1. Man,that crush spread is fun. Thanks to some fellow posters on this forum I think I know how to compute the percentage spread.

    So its beans/(meal x 2.2) + (oil x 11) = x Right?

    So I checked it this morning and it was 3.9%

    Now 3.9% doesn't mean anything by itself, but if tommorw it's 4.9% then it's 100% guaranteed that either

    A. The spread is trending wider

    B. It's about ready to reverse to the mean


    C. Everybody's happy and it will just stay there until November.

    hope this helps
  2. aw heck, I got wrong again.

    it's (meal x 2.2) + (oil x 11)/beans right?

    at any rate its 4% which is why I'm up $177 in beans and down $145 in beans and meal
  3. Aw heck I got it wrong again, I'm up in the meal and down in oil and beans.

    But I stll stand by my opinion that this crush spread is fun.
  4. bone

    bone ET Sponsor

    Well, on paper. Look at the order book in the oil. Call the floor and get a quote - Soy Oil is a shit show to be avoided. The slippage in the Oil dominates the trade.

    Just trade the Beans vs. Meal.
  5. drm7


    Looking at all kinds of "classic" spread trades right now, and stumbled on the front-month soybean crush. If my chart is right (using the proper ratios of beans/meal/oil), the current crush margin went from 80 to 30 and is now about 40 cents/bu.

    Bob McGovern's website mentioned that the crushers shut down at 20 cents a bushel, because they lose money. However, that's on a cash basis. Is front month at 40 historically a "value" area? I realize that price can go against the fundamentals for a LONG time, but favorable price action may produce a favorable risk/reward here.

    Any thoughts from the grain spreaders on here?
  6. I think it's usually Nov beans vs Dec meal and oil.

    Theres a study that goes back to 1961, commissions are figured at $104 (man those were the good days if you were on the right side of a series 3.)

    At any rate, some guy at university of chicago traded using a mean reversion strategy. Max profit was $720. avg profit was 28.

    I found it on google. Can't remember where.

    I just use percentages. Right now it's about 3.9%.

    They call it the most efficient spread of all time.
  7. I tweaked mine a little bit and substituted a short call for the short beans. After all the wild opens we've had, so far that has not been an advantageous strategy on that leg of the spread, the idea is if I close it and beans are below 1380 (which is my strike) I will just leave the short call on and watch it.