3.4.2.1. Soybean Crush Spread
The soybean crush spread is a common processing spread. The name derives from the practice of crushing soybeans to extract the oil and manufacture the meal. The soybean crush spread is a synthetic futures contract consisting of three legs. A buyer of a soybean crush spread will be long 10 soybean futures contracts, short 11 soybean meal contracts, and short 9 soybean oil contracts. This soybean crush synthetic futures contract is offered on CME and has a contract size of 50,000 bushels. The soybean crush spread is also referred as the board spread.
Processors use the crush to hedge against rising prices of soybeans and falling prices of soybean meal and soybean oil.
A crush may take other shapes as well, by acquiring each of its components separately. Its simplest and most common form is the 1:1:1 spread. Here, the hedger will buy one soybean contract and sell one soybean oil and one soybean meal contract. It is a less perfect hedge, but at 5,000 bushels each, it requires only one-tenth the investment. The crush calculation is listed below and it is meant to show how much a process