Long soybeans against short soybean meal and oil, or the reverse, replicating the processing margin of a soybean crushing plant.
A bushel of soybeans yields roughly 44 pounds of meal and 11 pounds of oil. The board crush prices that conversion with futures: short one soybean-futures contract against long soybean-meal-futures and soybean-oil-futures in the standard 10-11-9 ratio (10 beans, 11 meal, 9 oil).
Processors sell the crush when margins are fat to lock in profit, and the spread is one of the few futures trades with a genuine physical anchor. When the crush goes negative, plants slow down, which eventually tightens meal and repairs the margin.
Unit conversion is the hard part. Meal is quoted in dollars per short ton and oil in cents per pound, so both have to be converted to dollars per bushel before comparing with beans.
Example: beans $10.50/bu, meal $320/ton, oil 45 c/lb. Meal per bushel = 320 x 0.022 = $7.04, oil per bushel = 0.45 x 11 = $4.95. Crush = 7.04 + 4.95 - 10.50 = $1.49 per bushel gross margin.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.Margin and leverage. A $5,000 deposit can control a $100,000 position, which is 20:1 leverage. Because the loss is measured on the full $100,000, a 2.5% move against you halves the deposit and brings a margin call, and a 5% move uses all of it.
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