Crush Spread

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Crush Spread

A commodity spread involving soybean products. In it, one buys soybean futures at the same time one sells futures in soybean meal and soybean oil. Crushes are useful because they can take advantage of price spread between the underlying soybeans and products that can be derived from soybeans. See also: Reverse crush.
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Figures 3.4 and 3.5 show plots of the evolution of the selected cattle crush spreads from 1995 to 2006.
The cattle crush spreads that suited this plan was the mar/mar/oct combination, which became available on September 1st, 2004 (i.e.
The cattle crush spread is an intermarket spread in which, in theory, a transaction is made for a particular crush value rather than making individual trades in each of the spread components.
The cattle crush spread is a tool that can be employed in two different ways to avoid exposure to the risk of variable prices (Figure 3.3):
The cattle crush spread is calculated using the market prices of the futures contracts.
As explained in Table 3.4, the way that contracts are combined has an effect on the level of the cattle crush spread. Indeed, for the sep/sep/ apr the average spread was larger that the one observed for the mar/ mar/apr ($10.91/cwt vs.
The methods described here were applied to the cattle crush spread resulting from the contract combinations mar/mar/oct and sep/ sep/apr (Table 4.1).
The following are the descriptions of the trading strategies applied on the cattle crush spread. Numerical outcomes of these strategies can be found in Tables 4.2 and 4.3 while Figures A.4 to A.12 in the appendix are the corresponding graphical representations.
The cattle crush spread was shorted the first available trading day and bought back the last negotiation day.
The "zero" line and the standard deviation were calculated using the 1995's cattle crush spread data.
To prevent the crush spread from being outside the trading area, the "zero" line was recalculated every time the crush spread remained outside the band for 30 consecutive trading days.
In general, the use of the trading strategies on the cattle crush spread and then carrying the cattle without hedging, did not assure a reduction in the net return volatility.