Soybeans can be processed into two products: soybean meal and soybean oil. Typically 60 pounds (or 1 bushel) of soybean will yield about 48 pounds of meal and 12 pounds of oil. This is referred to as the soybean crush yield.
(1) Given the following current futures prices, calculate the soybean crush spread. Show the calculation details.
(2) Based on historical data, we know the March spread is abnormally narrower and went back to normal in April. You decided to trade on the spread in March. Indicate which contract(s) is over-priced or under-priced and describe the corresponding spread trading strategy.
Over-priced: ______________________ Under-priced: _____________________
Buy in March: _____________________ Sell in March: _____________________
Sell in April: ______________________ Buy in April: _____________________
(3) Assume that the soybean contract is for one bushel, meal contract is for 48 pounds, and oil contract is for 11 pounds. Based on the answers in (2), you buy or sell one of each contract in March and offset the positions in Aprio to make some profit. Fill in the details of these transactions below:
Profit/loss on soybean: ______________
Profit/loss on soybean meal: __________
Profit/loss on soybean oil: ____________
Net profit of spread: ________________
March soybean $8.60 ($/bushel) soybean meal $0.15 pound soybean oil $0.15 pound Spread April $9.00 bushel $0.155/pound. $0.155 /pound