Soybean Complex Ratios

Discussion in 'Commodity Futures' started by Tradeae, Jun 14, 2013.

  1. Tradeae



    I would like to know the ratios for "spread" positions between ZS, ZL& ZM.

    I use the word spread roughly.

    In essence how many contracts of ZL are equal to 1 contract of ZS in terms of volatility. Similarly, what would be the ratio between:

    ZL & ZM

    ZS & ZM

    Thank you.
  2. TraDaToR


    Here are the ratios on CME website( but there must a problem IMO ):

    5-1-1 for crush makes no sense. I guess it's 1-1-1 ( soy-meal-oil)for the small one. The exact one is 10-11-9 , processing wise , not volatility wise.

    If you want the exact ratios for soy/meal and soy/oïl, make a $ based average daily range values for both. I would say around 3/4 for soy/meal and 3/5 for soy/oïl( just a guess ).
  3. Tradeae


    Thanks TraDaToR,

    I used the $ based average daily range approach and I got for Soy/Oil: 2/10 and for Soy/Meal: 2/2.

    The Soy/Oil ratio seems off, seems incorrect intuitively - but that's what my calculations show. I am somewhat perplexed by this...

    What do you get?
  4. TraDaToR


    I haven't performed it in a while. It was just ratios I was using 3-4 years ago.It's really possible it has changed since. 1/5 for soy/oïl seems excessive though. Perhaps 1/3 but not more... Are you sure it's dollar amount based for one contract?

    Edit: I was using 2/5 for soy/oïl and not 3/5
  5. Brighton


    If you want to follow the synthetic crush, which is analogous to the various petroleum cracks derived from futures prices, it's available here. Also, some third-party data services carry the symbols.

    As Tradator noted, you might need to be more specific about what you're looking for. Inter- or intra-commodity price spreads or ratios? Historical volatility spreads? Implied volatility?
  6. TraDaToR


    Based on jul expiry, for 50 period ATR, I got 1/2.7 soy/oïl( 1250$ soy ATR/462$ oïl ATR )
  7. Brighton


    Contracts for the "board crush"

    10 Soybeans, 11 Soybean Meal, 9 Soybean Oil

    Or you can take one contract of each, where 1 bushel of soybeans (60 lbs) yields 44 lbs of 48% soybean meal, 11 lbs of soybean oil, 3-4 pounds of soy hulls and about a pound of waste, and set up a spreadsheet to do the bushel-ton-pounds conversions.

    Note: the calculation only includes beans, meal and oil; I threw in hulls and waste to balance 60 lbs in, 60 lbs out.
  8. stoic


    Not exactly sure what you're looking for, However....

    If one is looking for the correct spread ratios for the Soy Crush spread, the ZS x 10, ZL x 9 and ZM x 11 mimics the Crush Margin process the best. It is also acceptable for a 1-1-1 Crush Margin (aka poor man Crush spread). One has the Jan., Mar., May, Jul., Aug., & Sep. crush, and Nov. ZS vs. Oct. Products, Nov. ZS vs. Dec. Products Crush.

    I currently have all the Soy complex Crush Spreads compiled from 1975 to present.

    Now in terms of the "correct" ratio for ZS vs. ZL or ZM products, or ZL vs. ZM in terms of volatility...? That's hard to answer. Volatility varies over time and varies for a given time frame. Example:

    HV for ZMF3 on 3/1/12 was: 1 month = 4.22%, 2 month = 7.51 %, 3 month = 9.13%, 6 month = 13.78%, 9 month = 16.48%, and 12 month = 20.18%.

    The attached shows the average (all 6) volatility for the ZS and ZM on the Jan. 2013 contracts. Based on the small sample I put together for this reply, an increase in the volatility of 1 is reflected in the other.

    What I do to plot spreads in the ZS vs. 1 Product, or ZL vs. ZM is convert the price to equity value, then one less the other.(or Long less short) I also have all these compiled back to 1975.

    To look at all the spreads with a ratio of contracts based on Volatility one must ask..."The volatility over what time....? A default historical volatility of all contracts over a long period....? And once such a ration is computed, what's the objective.....long one short another to profit with reduced risk...? Profit from a change in the HV...?
    i960 likes this.
  9. Tradeae


    Volatility weighted ratios e.g. how many contracts of ZS are roughly equivalent to ZL in terms of volatility.

    For ZS:ZL I am getting 1:5 which intuitively seems too high.
  10. ofthomas


    but like stoic says, volatility for what period? saying volatility without a timeframe is not conducive to a good ratio...
    #10     Jun 14, 2013