1. Agricultural Marketing
ECON 337:
Agricultural Marketing
Lee Schulz
Assistant Professor 1

2. Multimarket relationships
Some futures markets have an obvious technical link
Soybeans, Soybean Oil, Soybean meal
Soybeans
Soybean Oil
Soybean Meal

3. Multimarket relationships
Feeder Cattle, Corn, Live Cattle
Feeder Cattle
Live Cattle
(Finished)
Corn

4. Multimarket relationships
Weaned pigs, Soybean Meal, Corn, Lean Hogs
Weaned Pigs
Lean Hogs
(Finished)
Corn
Soybean Meal

5. Multimarket relationships
Processors (producers) use these spreads to hedge production profits
Speculators use these spreads to bet on the profitability of that industry
Some markets have contracts that trade the spread in one transaction
e.g., Soybean Crush

6. Multimarket relationships
Soybean Crush Spread (CME)
Leg 1
Soybean meal futures
Sell 11 contracts
11*100 tons = 1,100 tons =
50,000 “bu”
Leg 2
Soybean oil futures
Sell 9 contracts
9*60,000 lbs = 540,000 lbs =
49,090 “bu”
Leg 3
Soybean futures
Buy 10 contracts
10*5000 bu = 50,000 bu
11:9:10 is the ratio of contracts to make the spread
CME Info on the soybean crush spread

7. Multimarket relationships
Soybean Crush Spread
The price of the spread is quoted as:
What are the and the 11 for?
Price is quoted on a per bushel basis

8. Multimarket relationships
Meal prices quoted per ton (44/2000 = 0.022)
&
Oil prices quoted per lb
Soybean Crushing Yields
Soybeans
1 bushel
60 lbs approx
Soybean Oil
11 lbs
Soybean Meal
44 lbs meal

9. Multimarket relationships
Soybean Crush Spread
The price of the spread is quoted as:
So the contract price quotes are per “bushel” profit margins
And the Crush Spread is a 50,000 “bushel” contract

12. Class web site: