Crush Spread
Categories: Derivatives, Trading
Crush spreads come into play in the soybean commodities market.
A savvy hedger or speculator will take a “long” position on soybean futures (betting the price will go up) and a “short” position on soybean oil and soybean meal futures (hoping the prices will go down).
They are banking on the processing costs of soybeans being undervalued, so he or she will make money buying soybeans that will go up in price, and selling soybean oil and soybean meal that should go down in price.
Or it could work the other way, if the processing costs of soybeans is overvalued (called a reverse crush spread).
Think about that the next time you enjoy a bowl of tofu. Or...don't enjoy a bowl of tofu.