@sdelsad/commodity-desk-daily 1.0.25 → 1.0.26
This diff represents the content of publicly available package versions that have been released to one of the supported registries. The information contained in this diff is provided for informational purposes only and reflects changes between package versions as they appear in their respective public registries.
- package/covered.md +1 -1
- package/ep08.html +754 -0
- package/ep08_chart1.png +0 -0
- package/ep08_chart2.png +0 -0
- package/ep08_chart3.png +0 -0
- package/package.json +1 -1
- package/ep08.script.txt +0 -80
package/covered.md
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@@ -9,4 +9,4 @@ Running log. Read before writing a new episode: avoid repeating material, and on
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- **Ep 5** (Fri) — *Wheat: The Map and the Screens*: Wheat classes and specs (SRW ~10 Chicago, HRW 11-12.5 KC, HRS 13.5+ Minneapolis, durum, Black Sea milling 11.5-12.5); protein, test weight and falling number as the real price, low falling number demotes milling to feed at ~40 USD/t. Four exchanges for one grain: Chicago and KC 5000 bu in c/bu, Minneapolis HRS, Matif EU milling 50 t lots in EUR/t delivered Rouen-Dunkirk; tick symmetry 12.50 dollars vs 12.50 euros; 60kt = 440 Chicago lots vs 1200 Matif lots. KC over Chicago 68c/bu = 26 USD/t as the protein spread and an export-bid signal. Black Sea has no futures - daily price assessments, why an assessment cannot be bought sold or hedged. Cross-hedge worked example: 60kt Russian 12.5 FOB at 224 hedged with 1200 Matif lots, Europe +10 EUR/t = -692k against physical +4 USD/t = +240k, net -452k = 7.5 USD/t slippage; cross-hedge protects against the world moving not your own market; correlation highest on quiet days; EUR/USD exposure created by the hedge itself (~13-14m EUR). MILL/SELLER dialogue on protein, falling number, test weight and the 9-dollar spec spread. Pulse: Thu 13 Aug give-back - Dec corn 4.7775 -0.6 percent, Nov beans 11.8175 flat, Chi Sep wheat 6.5125 -0.2 percent, KC Sep 7.2075 Wed settle; China bought new-crop US beans three days running totalling 505,000 t; GEO escalation - Russia struck Izmail on the Danube, Ukraine's fallback after deepwater loadings ~zero since 22 July, Ukrainian early-Aug shipments -76 percent y/y, wheat export forecast 8.3 Mt, USDA cut Russia+Ukraine exports 2.5 Mt, yet Chicago finished the week unchanged because US sales were only 255,900 t (-14 percent w/w) and the US share of world trade was cut to 9.9 from 10.9 percent - flow substitution needs a buyer who actually switches origin, and they call France, Argentina and Australia.
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- **Ep 6** (Mon) — *Corn, Crop Calendars and Weather Risk*: Corn as a demand story (feed ~2/5, ethanol grind and its margin switch, exports 3.275bn bu, stepped demand curve); corn-wheat feed substitution priced both ways - Dec corn 477.5 = 188 USD/t vs Dec SRW 679 = 249.5 USD/t, 4 percent feeding credit gives a 195 USD/t switch level, 54.50 USD/t gap = 148 c/bu, wheat would need 531; 654k a month on a 20kt mill at 60 percent inclusion; reverse ceiling corn at 240 USD/t = 609 c/bu; BROKER/FEEDER dialogue quoting flat-to-corn rather than a wheat price. Crop calendar table US/Ukraine/Brazil full-season/safrinha/Argentina, US and Ukraine share a hemisphere so not diversified, safrinha is 3/4 of Brazilian corn and its risk is the soybean harvest date in front of it (wet October to May pollination in the dry season). Anatomy of a weather premium: price of a distribution vs trend yield, builds 10-14 days before the window, decays on the calendar not the forecast; Aug WASDE case - yield cut 183 to 180.7 removed 204m bu on 88.6m harvested acres but 2.8m acres found lifted production to 16.013bn, second largest ever; planted vs harvested acres as two denominators, ~8m acres never cut for grain. Pulse: Fri 14 Aug closes higher across the board with wheat up 4 percent on the week (Sep corn 459 +11, Sep beans 1177.75 +11.75, Sep meal 310.20, Sep oil 69.44, Sep Chi wheat 674.75 +22, Dec SRW 679, Dec KC 747.25, Dec corn 477.5, Matif spot 228.25 EUR); GEO escalation - all three Novorossiysk grain terminals suspended by Ukrainian drone strikes, Russian August loadings ~2.5 Mt = under half the five-year pace and weakest August since 2016/17, Ukraine MTD 201.7 kt -76 percent y/y, deepwater corridor shut since 22 July, Russia rejected partial ceasefire for civilian shipping - flow substitution moved from threat to actual buying, which is why this week the price moved and last week it did not
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- **Ep 7** (Tue) — *WASDE and Building a Balance Sheet*: How a grain balance sheet is built line by line, and why ending stocks — the line nobody measures — moves about ten times faster than the crop itself. Plus feed and residual, the line that hides the sins, and why two competent analysts agree on supply and fight about demand.
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- **Ep 8** (Wed) — *The Soybean Complex and the Crush*:
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- **Ep 8** (Wed) — *The Soybean Complex and the Crush*: One seed, three markets: beans, meal and oil, and the processing margin that runs the industry. Board crush arithmetic step by step, why the plant never earns the screen number, and where a crusher's real optionality sits.
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package/ep08.html
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<meta name="description" content="One seed, three markets: beans, meal and oil, and the processing margin that runs the industry.">
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/* the cumulative glossary is a reference, not part of the article:
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<svg class="sun" viewBox="0 0 24 24" aria-hidden="true"><circle cx="12" cy="12" r="4.2"/><path d="M12 2v2M12 20v2M4.9 4.9l1.4 1.4M17.7 17.7l1.4 1.4M2 12h2M20 12h2M4.9 19.1l1.4-1.4M17.7 6.3l1.4-1.4"/></svg>
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<a href="https://storage.googleapis.com/podcast-audio-2647223968/index.html">Soft Commodity Trading</a>
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<span class="epno">Ep 08</span>
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</div>
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<h1>The Soybean Complex and the Crush</h1>
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399
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<p class="dek">One seed, three markets: beans, meal and oil, and the processing margin that runs the industry.</p>
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<div class="meta">Wednesday 19 August 2026 · <b>13 min 39</b></div>
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<div class="listen">
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<audio controls preload="none" src="https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep08.mp3"></audio>
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<button type="button" class="rate" data-rate="1.5" aria-pressed="false">1.5×</button>
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</span>
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<a href="https://storage.googleapis.com/podcast-audio-2647223968/commodity-desk-daily/ep08.mp3" download>Download</a>
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<nav class="toc" id="toc" aria-label="Contents"><p class="tochead">Contents</p><ol><li class="t2"><a href="#market-pulse">Market pulse</a></li><li class="t2"><a href="#key-takeaways">Key takeaways</a></li><li class="t2"><a href="#vocabulary">Vocabulary</a></li><li class="t2"><a href="#quiz">Quiz</a></li><li class="t2"><a href="#solutions">Solutions</a></li><li class="t2"><a href="#the-episode-in-writing">The episode, in writing</a></li><li class="t3"><a href="#one-seed-three-markets">One seed, three markets</a></li><li class="t3"><a href="#the-two-multipliers">The two multipliers</a></li><li class="t3"><a href="#the-board-crush-on-tuesday-s-numbers">The board crush, on Tuesday's numbers</a></li><li class="t3"><a href="#the-oil-share-and-why-it-inverted">The oil share, and why it inverted</a></li><li class="t3"><a href="#how-the-trade-gets-put-on">How the trade gets put on</a></li><li class="t3"><a href="#board-crush-is-not-plant-crush">Board crush is not plant crush</a></li><li class="t3"><a href="#why-a-wide-margin-does-not-get-competed-away">Why a wide margin does not get competed away</a></li><li class="t3"><a href="#what-actually-happens-when-the-crush-goes-negati">What actually happens when the crush goes negative</a></li><li class="t3"><a href="#the-leverage-in-one-number">The leverage, in one number</a></li><li class="t2"><a href="#glossary">Glossary</a></li></ol></nav>
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<h2 id="market-pulse">Market pulse<a class="anchor" href="#market-pulse" aria-label="Link to this section">#</a></h2>
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<p><strong>Beans went nowhere and soybean oil fell out of bed — so the crusher's margin moved while the seed did not.</strong></p>
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<div class="tablewrap" tabindex="0" role="region" aria-label="Table, scrolls sideways"><table><thead><tr><th>Commodity</th><th>Contract</th><th>Price</th><th class="num">Change</th></tr></thead><tbody><tr><td>Corn</td><td>Sep (CBOT)</td><td>463¼ c/bu</td><td class="num"><span class="mv down">−1¾¢</span></td></tr><tr><td>Corn</td><td>Dec (CBOT)</td><td>488 c/bu</td><td class="num"><span class="mv down">−1½¢</span></td></tr><tr><td>Soybeans</td><td>Sep (CBOT)</td><td>1200¾ c/bu</td><td class="num"><span class="mv down">−¼¢</span></td></tr><tr><td>Soybeans</td><td>Nov (CBOT)</td><td>1216¾ c/bu</td><td class="num"><span class="mv up">+¾¢</span></td></tr><tr><td>Soymeal</td><td>Sep (CBOT)</td><td>—</td><td class="num"><span class="mv up">+0.25%</span></td></tr><tr><td>Soyoil</td><td>Sep (CBOT)</td><td>—</td><td class="num"><span class="mv down">−2.5%</span></td></tr><tr><td>Wheat SRW</td><td>Sep (CBOT)</td><td>664½ c/bu</td><td class="num"><span class="mv down">−10¼¢</span></td></tr><tr><td>Wheat HRW</td><td>Sep (KC)</td><td>743¾ c/bu</td><td class="num"><span class="mv down">−15¢</span></td></tr></tbody></table></div>
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<p>Tuesday was a profit-taking session after a strong week, and the damage landed on wheat. Chicago soft red gave back 10¼ cents and Kansas City hard red gave back fifteen, close to 2%. Corn drifted lower on ratings that fell a point to 60% good to excellent, with 76% of the crop at dough — ahead of the five-year average of 70%. Soybeans held: ratings slipped to 61%, 85% of the crop is setting pods, and private exporters reported another 5.0 m bu sold to China for 2026/27.</p>
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<p>The move worth reading was inside the bean complex itself. Meal added a quarter of a percent. Oil lost nearly 2.5%. Beans finished flat. A soybean is not one price, and on Tuesday two of its three prices went in opposite directions.</p>
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<p><strong>The geopolitical read: policy is now half of a soybean.</strong> Soybean oil no longer prices as a food. It prices off American biofuel rules — the mandated renewable fuel volumes and the clean fuel production credit the trade calls 45Z — and off Brent, which sat just under $91. When those rules are uncertain, oil trades like a fuel, and it drags the crush with it. The second lever is fiscal. Argentina is cutting export taxes on a published schedule: soybeans at 24%, falling to 21% by end-2027 and 15% by end-2028, with meal and oil taxed <em>below</em> the bean. That gap is deliberate. It taxes the export of a seed more heavily than the export of a product, which is a subsidy for crushing at home. Two governments, two instruments, one margin.</p>
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<figure class="chartfig">
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<figcaption class="charttitle">One complex, two directions</figcaption>
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<style>.chart{--c-a:var(--accent,#1d4032);--c-b:var(--gold,#a8813c);--c-c:#4a6f8c;font-family:inherit}html[data-theme="dark"] .chart{--c-c:#7ba3c4}.chart .grid{stroke:var(--line,#ddd6c9);stroke-width:1}.chart .axis{fill:var(--ink-soft,#4a4238);font-size:12px}.chart .unit{fill:var(--ink-soft,#4a4238);font-size:11px;letter-spacing:.06em;text-transform:uppercase}.chart .ln{fill:none;stroke-width:2.25;stroke-linejoin:round;stroke-linecap:round}.chart .lg{fill:var(--ink,#16110c);font-size:12.5px}.chart .vlabel{fill:var(--ink,#16110c);font-size:11.5px;font-weight:600}@media (max-width:900px){.chart .axis{font-size:14px}.chart .unit{font-size:13px}.chart .lg{font-size:14.5px}.chart .vlabel{font-size:13.5px}.chart .ln{stroke-width:2.6}}@media (max-width:640px){.chart .axis{font-size:16px}.chart .unit{font-size:14px}.chart .lg{font-size:16px}.chart .vlabel{font-size:15px}.chart .ln{stroke-width:3.1}}</style>
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<text class="unit" x="622" y="16" text-anchor="end">% change, Tue 18 Aug</text>
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<text class="axis" x="103.2" y="306" text-anchor="middle">Corn Dec</text>
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<text class="axis" x="197.5" y="306" text-anchor="middle">Beans Nov</text>
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<text class="axis" x="291.8" y="306" text-anchor="middle">Meal Sep</text>
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<text class="axis" x="386.2" y="306" text-anchor="middle">Oil Sep</text>
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<text class="axis" x="480.5" y="306" text-anchor="middle">Wheat Sep</text>
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<text class="axis" x="574.8" y="306" text-anchor="middle">KC Sep</text>
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<figcaption class="chartcap">Soybeans finished unchanged while soybean oil lost 2.5%. A flat bean price is not a flat day for anyone who owns a crush plant. Wheat took the profit-taking. <span class="chartsrc">CBOT and KC settlements, Tuesday 18 August 2026, from the daily market recap.</span></figcaption>
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<h2 id="key-takeaways">Key takeaways<a class="anchor" href="#key-takeaways" aria-label="Link to this section">#</a></h2>
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<ul><li>One bushel of soybeans is 44 lb of meal and 11 lb of oil. The crusher does not choose the ratio, so he is a price-taker on the mix and cannot overweight the market he likes.</li><li>The two multipliers are the whole of the arithmetic: meal price × 0.022, oil price × 0.11, minus the bean price. Everything else is detail.</li><li>Oil is now more than half the gross product value. Meal used to be two-thirds of it. A crusher's biggest single exposure is to fuel policy, not to agriculture.</li><li>The board crush is a quote assembled from three futures prices. The plant crush is that number plus three separate basis positions, minus 35–50¢/bu of conversion cost.</li><li>Crushing capacity takes two to three years to build, so a wide margin is not competed away by new plants. It is competed away through the bean basis at the gate, which is why the screen can show a fat crush that nobody is earning.</li><li>A negative board crush rarely stops a plant, because the meal is already sold and restarting costs days. The real option is on variable margin over cash costs, on uncommitted volume only.</li><li>The margin is small relative to what it is built from. A 1% move in the products is about 6% of the crush.</li></ul>
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<h2 id="vocabulary">Vocabulary<a class="anchor" href="#vocabulary" aria-label="Link to this section">#</a></h2>
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<div class="tablewrap" tabindex="0" role="region" aria-label="Table, scrolls sideways"><table><thead><tr><th>Term</th><th>Meaning</th></tr></thead><tbody><tr><td><strong>Board crush</strong></td><td>The processing margin implied purely by futures prices, meal × 0.022 plus oil × 0.11 minus the bean price, in dollars per bushel</td></tr><tr><td><strong>Plant crush</strong></td><td>What a physical plant actually earns, the board crush adjusted for bean, meal and oil basis and net of conversion cost</td></tr><tr><td><strong>Gross processing margin (GPM)</strong></td><td>The industry name for product value minus raw material cost, the crush stated as a margin</td></tr><tr><td><strong>Putting on the crush</strong></td><td>Buying bean futures and selling meal and oil futures against them, in a 10-11-9 lot ratio, which fixes the margin</td></tr><tr><td><strong>Reverse crush</strong></td><td>The opposite position, short beans and long products, put on when a processor expects to idle capacity rather than run it</td></tr><tr><td><strong>Oil share</strong></td><td>Soybean oil's percentage of the combined value of meal and oil out of one bushel</td></tr><tr><td><strong>Meal contract</strong></td><td>CBOT soybean meal, 100 short tons, quoted in dollars per short ton</td></tr><tr><td><strong>Oil contract</strong></td><td>CBOT soybean oil, 60,000 lb, quoted in cents per pound</td></tr><tr><td><strong>Conversion cost</strong></td><td>The variable cost of turning beans into products — gas, power, hexane, labour, maintenance — typically 35–50 c/bu at a modern plant</td></tr><tr><td><strong>Crush capacity</strong></td><td>Installed daily processing volume, a physical constraint that cannot be expanded inside a marketing year</td></tr><tr><td><strong>Run rate</strong></td><td>The share of installed capacity a plant is actually operating at, the lever a crusher pulls when margins move</td></tr><tr><td><strong>Hexane</strong></td><td>The solvent used to extract the last of the oil from the flaked bean, and a real line in the conversion cost</td></tr><tr><td><strong>Joint product</strong></td><td>Two outputs produced in fixed proportion from one input, so that neither can be made without the other</td></tr><tr><td><strong>45Z</strong></td><td>The US clean fuel production credit, one of the two policy levers that sets American soybean oil demand</td></tr><tr><td><strong>Draw area</strong></td><td>The geographic catchment a plant buys its beans from, whose size sets how hard it must bid the local basis</td></tr></tbody></table></div>
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<h2 id="quiz">Quiz<a class="anchor" href="#quiz" aria-label="Link to this section">#</a></h2>
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<p id="q1" class="qq"><strong>Q1.</strong> Compute one from scratch. March meal is $325.00/short ton, March oil is 70.10 c/lb and March beans are 1248 c/bu. Give the board crush in dollars per bushel, in dollars per tonne of beans, and give the oil share. Then say which of the three legs you would hedge first if you could only reach one of them before the close, and why.</p>
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<p id="q2" class="qq"><strong>Q2.</strong> A plant runs 165,000 bu/day. The board crush is $2.52. Its bean basis at the gate is +18¢ over November, its meal basis is $6.00/short ton <em>under</em> December, its oil basis is 0.40 c/lb over December, and variable conversion cost is 42¢/bu. Compute the plant's actual margin per bushel and per day. Then explain which of those four adjustments is the one that moves most from week to week, and what that implies about where a crush trader should spend their attention.</p>
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<p id="q3" class="qq"><strong>Q3.</strong> The board crush goes to −15¢/bu and stays there for three weeks. Your plant has already sold 70% of next month's meal production forward at fixed prices, and shutting the line down costs roughly $400,000 plus four days. Argue the case for running anyway, then argue the case for cutting the run rate to 60%. State the single number that decides it, and explain why a trader watching only the board crush would reach the wrong answer.</p>
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<p id="q4" class="qq"><strong>Q4.</strong> <em>(Ep 7)</em> A desk rebuilds the US soybean sheet and lands on a carryout 12% below USDA's, having used a yield only 1.1% below USDA's. Ep 7 established that a carryout gap is usually half a crop view and half a demand view. Decompose this one: what has the desk almost certainly done to the demand side, and which single line is the most likely home for it? Then say why crush demand in particular makes this an unusually loaded disagreement in soybeans compared with corn.</p>
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<p id="q5" class="qq"><strong>Q5.</strong> <em>(Ep 7)</em> Feed and residual absorbs measurement error as well as livestock demand. Soybeans do not have a feed and residual line of the same character, because the crop is dominated by one measurable use. Name that use, explain why it makes the soybean balance sheet tighter to argue about than corn's, and identify where the residual uncertainty in soybeans actually hides instead.</p>
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<p id="q6" class="qq"><strong>Q6.</strong> <em>(Ep 5)</em> You are short 1,200 Matif lots against a Black Sea wheat cargo — the cross-hedge from ep 5. Your risk manager now asks you to hedge a 60,000 t Brazilian soybean cargo the same way, using CBOT beans. Explain why the second hedge is a fundamentally better one than the first, in terms of what each contract is actually referencing, and name the residual exposure the bean hedge still leaves you with.</p>
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<p id="q7" class="qq"><strong>Q7.</strong> <em>(Ep 5)</em> Ep 5 valued the KC-over-Chicago spread of 68 c/bu as $26/t of protein. On Tuesday KC September closed at 743¾ and Chicago September at 664½. Compute the spread in cents and in dollars per tonne. It has widened since ep 5 — give two distinct explanations, one about protein and one about export competitiveness, and say what you would look at to tell them apart.</p>
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<p id="q8" class="qq"><strong>Q8 — Conversion drill.</strong> A crush plant's draw area covers 640,000 hectares of soybeans. Convert that to acres. At an average 3.4 t/ha, convert the production to bushels. The plant runs 165,000 bu/day and operates 330 days a year. How many years of throughput does its draw area produce, and what does that ratio tell you about how hard it will have to bid the local basis?</p>
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<h2 id="solutions">Solutions<a class="anchor" href="#solutions" aria-label="Link to this section">#</a></h2><p class="secnote">One reveal per question — check your answer to Q1 without spoiling the rest.</p><div class="solnbar"><button type="button" class="ghost" data-solnall="open">Reveal all</button><button type="button" class="ghost" data-solnall="close">Hide all</button></div>
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<details class="soln" id="a1"><summary><span class="qn">Q1</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p>The arithmetic, in the fixed order.</p>
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<div class="tablewrap" tabindex="0" role="region" aria-label="Table, scrolls sideways"><table><thead><tr><th>Leg</th><th>Price</th><th>Multiplier</th><th class="num">Value per bushel</th></tr></thead><tbody><tr><td>Meal</td><td>$325.00/short ton</td><td>× 0.022</td><td class="num">$7.150</td></tr><tr><td>Oil</td><td>70.10 c/lb</td><td>× 0.11</td><td class="num">$7.711</td></tr><tr><td><strong>Gross product value</strong></td><td></td><td></td><td class="num"><strong>$14.861</strong></td></tr><tr><td>Beans</td><td>1248 c/bu</td><td></td><td class="num">−$12.480</td></tr><tr><td><strong>Board crush</strong></td><td></td><td></td><td class="num"><strong>$2.381</strong></td></tr></tbody></table></div>
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<p>So <strong>$2.38/bu</strong>. Per tonne, multiply by the 36.744 bushels in a tonne of soybeans: <strong>$87.50/t</strong>. Oil share is 7.711 ÷ 14.861 = <strong>51.9%</strong>.</p>
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<p>Which leg to hedge first: <strong>the beans</strong>. It is the largest single number in the calculation by a wide margin — $12.48 against $7.15 and $7.71 — so an unhedged bean leg carries more variance than either product leg on its own. The instinct to reach for oil first, because oil is the volatile one, is the trap. Volatility matters, but it is volatility <em>times notional</em>, and the bean leg's notional is 1.6× either product's. There is a second, practical reason: bean futures are the most liquid of the three, so it is the leg you can actually get done in size in the last minutes of a session. Hedge the thing you can hedge.</p>
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<p class="backq"><a href="#q1">↑ Back to question 1</a></p></div></details>
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<details class="soln" id="a2"><summary><span class="qn">Q2</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p>Build it as a bridge from the board.</p>
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<div class="tablewrap" tabindex="0" role="region" aria-label="Table, scrolls sideways"><table><thead><tr><th>Line</th><th class="num">¢/bu</th></tr></thead><tbody><tr><td>Board crush</td><td class="num">+252.0</td></tr><tr><td>Bean basis paid at the gate (+18¢)</td><td class="num">−18.0</td></tr><tr><td>Meal basis ($6.00/st under × 0.022)</td><td class="num">−13.2</td></tr><tr><td>Oil basis (0.40 c/lb over × 0.11)</td><td class="num">+4.4</td></tr><tr><td>Conversion cost</td><td class="num">−42.0</td></tr><tr><td><strong>Plant crush</strong></td><td class="num"><strong>+183.2</strong></td></tr></tbody></table></div>
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<p>Note the sign convention, which is where most people get this wrong. A bean basis <em>over</em> futures is a cost, because the plant is buying. A meal basis <em>under</em> futures is also a cost, because the plant is selling. Both work against you here; only the oil basis helps.</p>
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<p>$1.832/bu × 165,000 bu/day = <strong>$302,280 a day</strong>, about $6.3 m a month on a 21-day month.</p>
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<p>The line that moves most week to week is the <strong>bean basis</strong>. Conversion cost is close to fixed over a quarter. Meal and oil basis move, but within relatively narrow ranges set by freight to the feed mill and the refinery. The bean basis is the competitive variable: it is where the plant fights other plants, the export elevator and the farmer's willingness to sell, and it can move 20–30¢ in a fortnight when the board crush is wide and everyone is bidding for the same beans.</p>
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<p>The implication is uncomfortable for anyone who came from a screen-trading background. The board crush is the number on everyone's monitor, and it is the number a crush trader has the <em>least</em> ability to influence. The bean basis is the number that decides whether the plant makes money, and it is the one the desk actually controls, one origination decision at a time. Attention should be roughly inverse to how visible the number is.</p>
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<p class="backq"><a href="#q2">↑ Back to question 2</a></p></div></details>
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<details class="soln" id="a3"><summary><span class="qn">Q3</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p><strong>The case for running.</strong> 70% of next month's meal is sold forward at fixed prices. That meal has to come from somewhere. If the line stops, the plant must buy meal in the market to honour those sales, at whatever price prevails — and in a negative-crush environment, meal is exactly the product that rallies as run rates fall industry-wide. The plant would be buying back its own shortfall into a market its own shutdown helped tighten. Add the $400,000 and four days, and add the fact that a stopped line means the bean book, storage and staff do not stop costing money.</p>
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<p><strong>The case for cutting to 60%.</strong> A negative margin multiplied by volume is a loss that scales linearly. If the committed meal is 70% of a full run, then running at 60% still covers most of it while crushing 40% fewer bushels at a loss. Three weeks at −15¢ on 165,000 bu/day is roughly $520,000 of board-level loss at full rate; cutting to 60% saves about $210,000 of it, which is comparable to the shutdown cost without incurring it.</p>
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<p><strong>The single number that decides it: the variable margin over cash costs on the uncommitted volume.</strong> Not the board crush. The committed 70% is not a decision any more — that meal is sold, and the only question is whether it is cheaper to make it or buy it. The decision lives entirely in the remaining 30%. If, on that marginal volume, revenue at today's cash meal and oil prices exceeds the cash cost of the beans plus variable conversion, the plant runs it. If not, it cuts. Fixed costs and the board crush are both irrelevant to that comparison.</p>
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<p>The trap the question sets is that a trader watching only the board crush sees −15¢, concludes the industry is losing money, and shorts meal or buys beans. The actual chain runs the other way: negative margins cut run rates, cut run rates tighten meal supply, tight meal supply rallies meal, and the crush repairs itself. A deeply negative crush is more often a reason to own meal than to sell it.</p>
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<p class="backq"><a href="#q3">↑ Back to question 3</a></p></div></details>
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<details class="soln" id="a4"><summary><span class="qn">Q4</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p>A 1.1% yield cut with a 12% carryout cut is far more leverage than the supply side alone can produce. In ep 7's US corn arithmetic, roughly a 1% yield error produced something on the order of a 10% carryout error, and even that ratio needs a large crop sitting on a small carryout. Here the desk has done something to demand as well: it is <strong>carrying more use than USDA</strong>, and the most likely home for it is the <strong>crush</strong> line, with exports the second candidate.</p>
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<p>Crush makes this loaded in a way corn's disagreements are not. In corn, the two big demand lines — feed and ethanol — are either inferred or set by policy and capacity that changes slowly. In soybeans, crush is a <em>margin-driven</em> line. If the board crush is wide, plants run harder, and crush demand rises endogenously. So a desk that is bullish the crush margin is, by construction, bullish crush volume, which cuts the carryout, which is itself bullish beans, which compresses the crush margin. The demand line and the price feed back into each other inside the same sheet. That is why two competent soybean analysts can agree on the crop to within a bushel and still be 100 m bu apart on the carryout.</p>
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484
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+
<p class="backq"><a href="#q4">↑ Back to question 4</a></p></div></details>
|
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485
|
+
<details class="soln" id="a5"><summary><span class="qn">Q5</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p>The use is <strong>crush</strong>, and in the US it is the largest single domestic use of the soybean crop by a wide margin. It is <em>measured</em>, not inferred: NOPA publishes a monthly crush figure from its member plants, and members account for the large majority of US capacity. That is a monthly, hard, published number against a line that in corn would be a quarterly inference.</p>
|
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486
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+
<p>This makes the soybean sheet tighter to argue about. There is less room to hide a mistake, because a wrong crush assumption is contradicted by a real print within weeks, rather than surviving until the next Grain Stocks survey.</p>
|
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487
|
+
<p>The residual uncertainty does not vanish, though — it <strong>moves to exports</strong>, and specifically to the gap between commitments and shipments. Ep 7's pulse made the point about the buyer's clock: a Chinese purchase is a promise on a balance sheet, and a loading is a fact on a vessel. Sales can be booked, rolled, switched to another origin or cancelled. So the soybean sheet's soft line is not a residual absorbing measurement error, it is a demand line absorbing <em>counterparty behaviour</em>. Different problem, same effect on the carryout.</p>
|
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488
|
+
<p class="backq"><a href="#q5">↑ Back to question 5</a></p></div></details>
|
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489
|
+
<details class="soln" id="a6"><summary><span class="qn">Q6</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p>The ep 5 Matif hedge was a <strong>cross-hedge</strong>: 12.5% Russian milling wheat, FOB Black Sea, hedged with a contract that references EU milling wheat delivered Rouen–Dunkirk. Different wheat, different quality spec, different delivery geography, different currency. The contract is a proxy for a world price, and the basis between the two is itself a large, volatile, unhedgeable position — which is how the worked example produced $7.50/t of slippage on a 10 EUR/t European move.</p>
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490
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+
<p>CBOT beans against a Brazilian cargo is a materially better hedge for one structural reason: <strong>soybeans are close to a globally fungible commodity, and CBOT is the world's reference price for it.</strong> Brazilian beans and US beans are substitutes into the same crushers, with a protein and oil-content difference that is small and slow-moving. Brazilian physical trades explicitly as a differential <em>to CBOT</em> — Paranaguá plus or minus so many cents against a named month — which is the clearest possible evidence that the contract is the right reference. The Black Sea has no futures at all, only assessments, which is why ep 5 had to reach for Matif in the first place.</p>
|
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491
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+
<p>The residual exposure is the <strong>basis itself</strong>: the Paranaguá or Santos differential against the board. Freight, the Brazilian farmer's selling pace, the real, line-ups at the port and Chinese demand all move it, and none of them are in the CBOT price. That is not a flaw in the hedge — it is the trade. The hedge is meant to remove flat price and leave the basis, and per ep 2, the basis is what the merchant is paid to be long or short of. The difference from the wheat case is one of scale: a bean basis position is a known, tradeable exposure of a few tens of cents; the Black Sea-to-Matif basis was an unknown of $7.50/t on a quiet move.</p>
|
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492
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+
<p class="backq"><a href="#q6">↑ Back to question 6</a></p></div></details>
|
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493
|
+
<details class="soln" id="a7"><summary><span class="qn">Q7</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p>743.75 − 664.50 = <strong>79¼ c/bu</strong>.</p>
|
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494
|
+
<p>Convert: wheat is 36.744 bu/t, so 0.7925 × 36.744 = <strong>$29.12/t</strong>. Against ep 5's 68¢ and $26/t, the spread has widened about 11¼¢, or roughly $3/t.</p>
|
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495
|
+
<p><strong>Explanation one, protein.</strong> KC prices hard red winter at 11–12.5% protein; Chicago prices soft red at around 10%. The spread is the market's price for those extra protein points. It widens when the milling market is short of protein — a low-protein HRW harvest, or strong flour demand for bread grists rather than biscuit grists.</p>
|
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496
|
+
<p><strong>Explanation two, export competitiveness.</strong> HRW is the US export wheat; SRW is more of a domestic and Gulf-of-Mexico feed-and-biscuit wheat. If US HRW is winning tenders — or if a competing origin's HRW-substitute is unavailable — KC gets bid on export demand alone, with nothing to do with protein.</p>
|
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497
|
+
<p><strong>How to tell them apart.</strong> Look at the cash protein scale first: the premium paid for 12% over 11% HRW at Gulf and at the plains elevators. If protein is the story, that ladder steepens and the KC spread widens with it. If the ladder is flat and KC is still bid, it is export demand, and you would confirm it in the weekly export sales, in the tender results, and in the KC cash basis at the Gulf. On Tuesday the direction argues for neither, incidentally: KC fell <em>harder</em> than Chicago, which narrows the spread on the day, so this was profit-taking on a position rather than a change in the underlying story.</p>
|
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498
|
+
<p class="backq"><a href="#q7">↑ Back to question 7</a></p></div></details>
|
|
499
|
+
<details class="soln" id="a8"><summary><span class="qn">Q8</span><span class="sl">Reveal the answer</span></summary><div class="solnbody"><p><strong>Conversion drill.</strong> 640,000 ha → acres. Fast method: ×2.5 and shave 1%. 640,000 × 2.5 = 1,600,000, less 16,000 = <strong>1,584,000 acres</strong>, call it 1.58 m acres. (Exact: 640,000 × 2.47 = 1,580,800.)</p>
|
|
500
|
+
<p>Production: 640,000 ha × 3.4 t/ha = <strong>2,176,000 t</strong>. In bushels, × 36.744 = <strong>79.96 m bu</strong>, call it 80 m.</p>
|
|
501
|
+
<p>Plant throughput: 165,000 bu/day × 330 days = <strong>54.45 m bu a year</strong>.</p>
|
|
502
|
+
<p>80.0 ÷ 54.45 = <strong>1.47 years</strong> of throughput sitting in the draw area.</p>
|
|
503
|
+
<p>What it tells you: the plant needs roughly <strong>68% of every soybean grown in its catchment</strong>. That is a demanding share, and it is why the bean basis at the gate is the number that decides the plant's margin. It cannot simply wait for beans to arrive; it has to outbid the export elevator, the river terminal and the farmer's storage decision for two bushels in every three, all year, every year. A plant with a 3× ratio can be relaxed about basis. A plant at 1.5× cannot, and that is the physical reason a wide board crush gets competed away through the origination bid rather than through new capacity.</p>
|
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504
|
+
<p class="backq"><a href="#q8">↑ Back to question 8</a></p></div></details><h2 id="the-episode-in-writing">The episode, in writing<a class="anchor" href="#the-episode-in-writing" aria-label="Link to this section">#</a></h2>
|
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505
|
+
<h3 id="one-seed-three-markets">One seed, three markets<a class="anchor" href="#one-seed-three-markets" aria-label="Link to this section">#</a></h3>
|
|
506
|
+
<p>A soybean is not a commodity. It is a package of two commodities that have to be sold together.</p>
|
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507
|
+
<p>Put 60 lb of beans — one bushel — through a crush plant and you get roughly <strong>44 lb of meal</strong> and <strong>11 lb of oil</strong>, with the balance lost to hulls and moisture. Those proportions are set by the seed, not by the plant, and they do not respond to which market a trader would rather be in.</p>
|
|
508
|
+
<p>That matters because meal and oil are not related businesses.</p>
|
|
509
|
+
<p><strong>Meal is a protein market.</strong> It goes into a feed ration, where it competes with fishmeal, rapeseed meal and — at the margin, on an energy-versus-protein trade-off — with corn. Its demand is livestock: hog herds in China, poultry in Brazil and Southeast Asia, dairy in Europe. It is agricultural, seasonal and slow.</p>
|
|
510
|
+
<p><strong>Oil is a vegetable oil market with an energy problem attached.</strong> It competes with palm and canola in a fryer and with diesel in a tank. Its demand is set as much by biofuel mandates and tax credits as by cooking. It is fast, political, and correlated to crude.</p>
|
|
511
|
+
<p>The crusher is exposed to both, in a fixed ratio, permanently. He is a price-taker on the mix. That single fact generates everything else in this lesson.</p>
|
|
512
|
+
<h3 id="the-two-multipliers">The two multipliers<a class="anchor" href="#the-two-multipliers" aria-label="Link to this section">#</a></h3>
|
|
513
|
+
<p>Three markets means three quoting conventions, and the arithmetic does not work until they are collapsed into one unit.</p>
|
|
514
|
+
<div class="tablewrap" tabindex="0" role="region" aria-label="Table, scrolls sideways"><table><thead><tr><th>Instrument</th><th class="num">Contract size</th><th>Quoted in</th></tr></thead><tbody><tr><td>Soybeans (ZS)</td><td class="num">5,000 bu</td><td>cents per bushel</td></tr><tr><td>Soybean meal (ZM)</td><td class="num">100 short tons</td><td>dollars per short ton</td></tr><tr><td>Soybean oil (ZL)</td><td class="num">60,000 lb</td><td>cents per pound</td></tr></tbody></table></div>
|
|
515
|
+
<p>The collapse is two constants:</p>
|
|
516
|
+
<ul><li><strong>Meal:</strong> 44 lb out of a 2,000 lb short ton is 0.022. Meal price × 0.022 = meal value per bushel.</li><li><strong>Oil:</strong> 11 lb, priced in cents, divided by 100, is 0.11. Oil price × 0.11 = oil value per bushel.</li></ul>
|
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517
|
+
<p>Add the two, subtract the bean price, and you have the <strong>board crush</strong>. Those two numbers, 0.022 and 0.11, are worth committing to memory. Every conversation about this market runs through them.</p>
|
|
518
|
+
<h3 id="the-board-crush-on-tuesday-s-numbers">The board crush, on Tuesday's numbers<a class="anchor" href="#the-board-crush-on-tuesday-s-numbers" aria-label="Link to this section">#</a></h3>
|
|
519
|
+
<div class="tablewrap" tabindex="0" role="region" aria-label="Table, scrolls sideways"><table><thead><tr><th>Leg</th><th>Price</th><th>Multiplier</th><th class="num">$/bu</th></tr></thead><tbody><tr><td>Meal, Dec</td><td>$321.60/short ton</td><td>× 0.022</td><td class="num">7.08</td></tr><tr><td>Oil, Dec</td><td>≈69.2 c/lb</td><td>× 0.11</td><td class="num">7.61</td></tr><tr><td><strong>Gross product value</strong></td><td></td><td></td><td class="num"><strong>14.69</strong></td></tr><tr><td>Beans, Nov</td><td>1216¾ c/bu</td><td></td><td class="num">−12.17</td></tr><tr><td><strong>Board crush</strong></td><td></td><td></td><td class="num"><strong>2.52</strong></td></tr></tbody></table></div>
|
|
520
|
+
<p>The oil figure is derived rather than quoted: December oil closed Monday at 70.96 c/lb, and Tuesday's session took the front month down about 2.5%, which puts December near 69.2.</p>
|
|
521
|
+
<p><strong>$2.52 a bushel.</strong> In the units used outside the United States, multiply by the 36.744 bushels in a tonne of soybeans: <strong>$92.50 per tonne of beans crushed</strong>.</p>
|
|
522
|
+
<figure class="chartfig">
|
|
523
|
+
<figcaption class="charttitle">The board crush, decomposed</figcaption>
|
|
524
|
+
<svg class="chart" viewBox="0 0 640 330" width="100%" preserveAspectRatio="xMidYMid meet" xmlns="http://www.w3.org/2000/svg" role="img">
|
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525
|
+
<style>.chart{--c-a:var(--accent,#1d4032);--c-b:var(--gold,#a8813c);--c-c:#4a6f8c;font-family:inherit}html[data-theme="dark"] .chart{--c-c:#7ba3c4}.chart .grid{stroke:var(--line,#ddd6c9);stroke-width:1}.chart .axis{fill:var(--ink-soft,#4a4238);font-size:12px}.chart .unit{fill:var(--ink-soft,#4a4238);font-size:11px;letter-spacing:.06em;text-transform:uppercase}.chart .ln{fill:none;stroke-width:2.25;stroke-linejoin:round;stroke-linecap:round}.chart .lg{fill:var(--ink,#16110c);font-size:12.5px}.chart .vlabel{fill:var(--ink,#16110c);font-size:11.5px;font-weight:600}@media (max-width:900px){.chart .axis{font-size:14px}.chart .unit{font-size:13px}.chart .lg{font-size:14.5px}.chart .vlabel{font-size:13.5px}.chart .ln{stroke-width:2.6}}@media (max-width:640px){.chart .axis{font-size:16px}.chart .unit{font-size:14px}.chart .lg{font-size:16px}.chart .vlabel{font-size:15px}.chart .ln{stroke-width:3.1}}</style>
|
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526
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+
<line class="grid" x1="56" y1="286.0" x2="622" y2="286.0"/>
|
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527
|
+
<text class="axis" x="46" y="290.0" text-anchor="end">0</text>
|
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528
|
+
<line class="grid" x1="56" y1="204.1" x2="622" y2="204.1" opacity=".45"/>
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529
|
+
<text class="axis" x="46" y="208.1" text-anchor="end">5</text>
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530
|
+
<line class="grid" x1="56" y1="122.1" x2="622" y2="122.1" opacity=".45"/>
|
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531
|
+
<text class="axis" x="46" y="126.1" text-anchor="end">10</text>
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532
|
+
<line class="grid" x1="56" y1="40.2" x2="622" y2="40.2" opacity=".45"/>
|
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533
|
+
<text class="axis" x="46" y="44.2" text-anchor="end">15</text>
|
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534
|
+
<text class="unit" x="46" y="16" text-anchor="end">$/bu</text>
|
|
535
|
+
<text class="axis" x="126.8" y="306" text-anchor="middle">Meal value</text>
|
|
536
|
+
<text class="axis" x="268.2" y="306" text-anchor="middle">Oil value</text>
|
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537
|
+
<text class="axis" x="409.8" y="306" text-anchor="middle">Bean cost</text>
|
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538
|
+
<text class="axis" x="551.2" y="306" text-anchor="middle">Board crush</text>
|
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539
|
+
<rect x="89.8" y="170.0" width="74.0" height="116.0" rx="2" fill="var(--c-a)" opacity=".92"/>
|
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540
|
+
<text class="vlabel" x="126.8" y="163.0" text-anchor="middle">7.08</text>
|
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541
|
+
<line class="grid" x1="163.8" y1="170.0" x2="231.2" y2="170.0" stroke-dasharray="3 3" opacity=".5"/>
|
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542
|
+
<rect x="231.2" y="45.3" width="74.0" height="124.7" rx="2" fill="var(--c-a)" opacity=".78"/>
|
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543
|
+
<text class="vlabel" x="268.2" y="38.3" text-anchor="middle">7.61</text>
|
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544
|
+
<line class="grid" x1="305.2" y1="45.3" x2="372.8" y2="45.3" stroke-dasharray="3 3" opacity=".5"/>
|
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545
|
+
<rect x="372.8" y="45.3" width="74.0" height="199.4" rx="2" fill="#8a3b2f" opacity=".78"/>
|
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546
|
+
<text class="vlabel" x="409.8" y="38.3" text-anchor="middle">-12.2</text>
|
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547
|
+
<line class="grid" x1="446.8" y1="244.7" x2="514.2" y2="244.7" stroke-dasharray="3 3" opacity=".5"/>
|
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548
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+
<rect x="514.2" y="244.7" width="74.0" height="41.3" rx="2" fill="var(--c-b)" opacity=".92"/>
|
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549
|
+
<text class="vlabel" x="551.2" y="237.7" text-anchor="middle">2.52</text>
|
|
550
|
+
</svg>
|
|
551
|
+
<figcaption class="chartcap">Two product values, one raw material cost, and a $2.52 margin left over. Oil is now the larger of the two products, which is why an energy-market afternoon moves an agricultural margin. <span class="chartsrc">CBOT Dec meal $321.60/st and Nov beans 1216¾ c/bu (18 Aug 2026 settlements); Dec oil derived from Monday's 70.96 c/lb and Tuesday's ~2.5% decline.</span></figcaption>
|
|
552
|
+
</figure>
|
|
553
|
+
<h3 id="the-oil-share-and-why-it-inverted">The oil share, and why it inverted<a class="anchor" href="#the-oil-share-and-why-it-inverted" aria-label="Link to this section">#</a></h3>
|
|
554
|
+
<p>Look at what sits inside that $14.69 of product value. Oil is $7.61 of it — <strong>51.8%</strong>. Meal is the smaller half.</p>
|
|
555
|
+
<p>For most of the twentieth century this was the other way round. Meal was the point of a soybean and oil was the by-product that had to be disposed of; meal routinely ran two-thirds of the value. Biofuel demand inverted it. Renewable diesel capacity built through the 2020s turned soybean oil into a feedstock competing with a fuel, and a feedstock market prices off the fuel it displaces, not off the food it used to be.</p>
|
|
556
|
+
<p>The consequence for a crusher is structural, not cyclical. <strong>More than half of what he sells is priced by regulation.</strong> A renewable volume obligation, a tax credit, a change in what counts as a qualifying feedstock — each of these is worth more to his margin than a change in the soybean crop.</p>
|
|
557
|
+
<p>Tuesday made the point cleanly. Beans finished unchanged. The crusher's margin did not.</p>
|
|
558
|
+
<h3 id="how-the-trade-gets-put-on">How the trade gets put on<a class="anchor" href="#how-the-trade-gets-put-on" aria-label="Link to this section">#</a></h3>
|
|
559
|
+
<p>A crush trader does not quote three legs. He quotes one number.</p>
|
|
560
|
+
<blockquote><strong>CRUSHER:</strong> Where's December board crush?<br><strong>BROKER:</strong> Two fifty two, two fifty five.<br><strong>CRUSHER:</strong> I'll pay two fifty three for two hundred.<br><strong>BROKER:</strong> Done. Two hundred at two fifty three. Long beans, short meal, short oil. Ten, eleven, nine.</blockquote>
|
|
561
|
+
<p>Two things happened there.</p>
|
|
562
|
+
<p><strong>One price for three contracts.</strong> "Buying the crush" means buying bean futures and selling meal and oil futures against them. That position gains when the margin narrows — which is exactly the point, because the plant's physical business gains when the margin is wide. The paper is the mirror image of the plant, so the margin stops moving. The crusher has fixed $2.53 on 200 lots of throughput.</p>
|
|
563
|
+
<p><strong>The 10-11-9 ratio is not a convention.</strong> It is the seed. Ten bean contracts are 50,000 bu. That much crushes into 50,000 × 44 lb = 2.2 m lb of meal, which is 1,100 short tons, which is exactly <strong>eleven</strong> meal contracts. And 50,000 × 11 lb = 550,000 lb of oil, which is 9.17 oil contracts — rounded to <strong>nine</strong>. The ratio falls out of the physical yield and nothing else.</p>
|
|
564
|
+
<h3 id="board-crush-is-not-plant-crush">Board crush is not plant crush<a class="anchor" href="#board-crush-is-not-plant-crush" aria-label="Link to this section">#</a></h3>
|
|
565
|
+
<p>Here is the distinction that separates a trainee from a crush trader, and it is the reason a screen can mislead an entire market.</p>
|
|
566
|
+
<p>That $2.52 is a paper number assembled from three futures prices. <strong>No plant transacts at any of them.</strong></p>
|
|
567
|
+
<p>A plant buys beans at its own gate, from farmers and elevators, at futures plus or minus a differential. It sells meal to a feed mill two hundred miles away, at futures plus or minus a differential. It sells oil to a refiner on the same basis. So:</p>
|
|
568
|
+
<blockquote><strong>Plant crush = board crush ± bean basis ± meal basis ± oil basis − conversion cost</strong></blockquote>
|
|
569
|
+
<p>And conversion cost is real money. Natural gas to run the dryers and the desolventiser, electricity, hexane, labour, maintenance, and a depreciation charge if you are being honest about it. Variable cost at a modern plant is roughly <strong>35–50 c/bu</strong>.</p>
|
|
570
|
+
<p>Take the friendly end of that range. $2.52 of board crush minus 40¢ is <strong>$2.12</strong>, before a single basis number has been added. Add a typical set of gate and destination bases — a bean basis over the board, a meal basis under it — and the number a plant actually books can be a dollar below what the screen shows.</p>
|
|
571
|
+
<h3 id="why-a-wide-margin-does-not-get-competed-away">Why a wide margin does not get competed away<a class="anchor" href="#why-a-wide-margin-does-not-get-competed-away" aria-label="Link to this section">#</a></h3>
|
|
572
|
+
<p>Standard economics says a $2 margin attracts entry until it disappears. In crush it does not, and the reason is physical.</p>
|
|
573
|
+
<p><strong>You cannot make crushing capacity this week.</strong> A new plant is two to three years of permitting and construction and hundreds of millions of dollars. Inside a marketing year, installed capacity is a hard constraint. When margins are wide, every plant is already running flat out, the constraint binds, and a binding constraint holds a margin open.</p>
|
|
574
|
+
<p>So what adjusts?</p>
|
|
575
|
+
<p><strong>The bean basis.</strong> Plants bid harder for cash beans at the gate to keep the line full, because an idle hour of capacity in a wide-margin environment is the most expensive thing in the business. Origination teams push the local bid up, and up again, competing against each other and against the export elevator.</p>
|
|
576
|
+
<p>The result is the single most common misreading of this market. <strong>The board crush stays fat on the screen while the plant crush quietly compresses.</strong> The margin is real, but it does not all end up with the crusher. A meaningful share of it is transferred to the farmer, in the basis, one truckload at a time. Anyone who models crusher profitability off the board number and no basis assumption will overstate it, sometimes badly.</p>
|
|
577
|
+
<h3 id="what-actually-happens-when-the-crush-goes-negati">What actually happens when the crush goes negative<a class="anchor" href="#what-actually-happens-when-the-crush-goes-negati" aria-label="Link to this section">#</a></h3>
|
|
578
|
+
<p>The textbook answer is that the plant shuts. The plant usually does not, and understanding why is understanding where the optionality really sits.</p>
|
|
579
|
+
<p>Two reasons.</p>
|
|
580
|
+
<p><strong>Stopping is expensive and slow.</strong> A crush line does not idle for an afternoon. Shutting down and restarting costs money and days, and the fixed cost base does not stop.</p>
|
|
581
|
+
<p><strong>The meal is already sold.</strong> Most of the meal that will come out of next month's beans has been sold forward at fixed prices to feed mills that are counting on it. A plant that stops does not simply stop losing money — it has to go into the market and <em>buy</em> meal to cover its own sales, in exactly the environment where every other plant is cutting runs and meal is tightening.</p>
|
|
582
|
+
<p>So the plant is not choosing between running and not running. It is choosing between a negative margin and a negative margin plus a short meal book in a rising market.</p>
|
|
583
|
+
<p>The real option is therefore not on the board crush at all. <strong>It is on the variable margin, over cash costs, on the volume that is not already committed.</strong> The committed volume is not a decision; it is a delivery obligation, and the only question there is make-or-buy. The decision lives in the uncommitted remainder, and it is decided against cash prices and cash costs — never against the screen.</p>
|
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<p>And the system repairs itself. Run rates fall, meal supply tightens, meal rallies, the crush widens, the plants come back. Which is why a deeply negative board crush is more often a reason to own meal than a reason to sell it.</p>
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<h3 id="the-leverage-in-one-number">The leverage, in one number<a class="anchor" href="#the-leverage-in-one-number" aria-label="Link to this section">#</a></h3>
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<p>Finish with the ratio that makes all of this matter.</p>
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587
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+
<p>The margin is $2.52. It sits on $14.69 of gross product value. The crush is a <strong>17% margin on the products, built from a position with five to six times its own size in gross exposure.</strong></p>
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588
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<p>So a 1% move in the product complex is worth about 15¢ — roughly <strong>6% of the entire margin</strong>.</p>
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<p>Tuesday's oil move on its own makes the point. A 2.5% decline is about 1.77 c/lb, and 1.77 × 0.11 = <strong>19½ c/bu</strong>. Nineteen and a half cents against a $2.52 margin is close to <strong>8% of a crusher's economics</strong>, delivered in one afternoon, by a market that is not soybeans and never was.</p>
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<figure class="chartfig">
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<figcaption class="charttitle">What a 10% move in each leg is worth</figcaption>
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<svg class="chart" viewBox="0 0 640 330" width="100%" preserveAspectRatio="xMidYMid meet" xmlns="http://www.w3.org/2000/svg" role="img">
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<style>.chart{--c-a:var(--accent,#1d4032);--c-b:var(--gold,#a8813c);--c-c:#4a6f8c;font-family:inherit}html[data-theme="dark"] .chart{--c-c:#7ba3c4}.chart .grid{stroke:var(--line,#ddd6c9);stroke-width:1}.chart .axis{fill:var(--ink-soft,#4a4238);font-size:12px}.chart .unit{fill:var(--ink-soft,#4a4238);font-size:11px;letter-spacing:.06em;text-transform:uppercase}.chart .ln{fill:none;stroke-width:2.25;stroke-linejoin:round;stroke-linecap:round}.chart .lg{fill:var(--ink,#16110c);font-size:12.5px}.chart .vlabel{fill:var(--ink,#16110c);font-size:11.5px;font-weight:600}@media (max-width:900px){.chart .axis{font-size:14px}.chart .unit{font-size:13px}.chart .lg{font-size:14.5px}.chart .vlabel{font-size:13.5px}.chart .ln{stroke-width:2.6}}@media (max-width:640px){.chart .axis{font-size:16px}.chart .unit{font-size:14px}.chart .lg{font-size:16px}.chart .vlabel{font-size:15px}.chart .ln{stroke-width:3.1}}</style>
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<line class="grid" x1="56" y1="286.0" x2="622" y2="286.0" opacity=".45"/>
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<text class="axis" x="46" y="290.0" text-anchor="end">-1.5</text>
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<line class="grid" x1="56" y1="234.0" x2="622" y2="234.0" opacity=".45"/>
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<text class="axis" x="46" y="238.0" text-anchor="end">-1</text>
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<line class="grid" x1="56" y1="182.0" x2="622" y2="182.0" opacity=".45"/>
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<text class="axis" x="46" y="186.0" text-anchor="end">-0.5</text>
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<line class="grid" x1="56" y1="130.0" x2="622" y2="130.0"/>
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<text class="axis" x="46" y="134.0" text-anchor="end">0</text>
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<line class="grid" x1="56" y1="78.0" x2="622" y2="78.0" opacity=".45"/>
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<text class="axis" x="46" y="82.0" text-anchor="end">0.5</text>
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<line class="grid" x1="56" y1="26.0" x2="622" y2="26.0" opacity=".45"/>
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<text class="axis" x="46" y="30.0" text-anchor="end">1</text>
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<text class="unit" x="622" y="16" text-anchor="end">$/bu impact on the crush</text>
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607
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+
<text class="axis" x="150.3" y="306" text-anchor="middle">Meal +10%</text>
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608
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+
<text class="axis" x="339.0" y="306" text-anchor="middle">Oil +10%</text>
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609
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+
<text class="axis" x="527.7" y="306" text-anchor="middle">Beans +10%</text>
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610
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+
<rect x="130.1" y="56.2" width="40.5" height="73.8" rx="2" fill="var(--c-a)" opacity=".85"/>
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<rect x="318.8" y="51.0" width="40.5" height="79.0" rx="2" fill="var(--c-a)" opacity=".85"/>
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<rect x="507.4" y="130.0" width="40.5" height="126.9" rx="2" fill="var(--c-a)" opacity=".85"/>
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<line class="grid" x1="56" y1="130.0" x2="622" y2="130.0"/>
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</svg>
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<figcaption class="chartcap">The bean leg is the biggest single exposure — 1.6 times either product — which is why it is the leg to hedge first even though oil is the volatile one. Volatility matters, but only multiplied by notional. <span class="chartsrc">Computed from Tuesday's board crush legs: meal $321.60/st, oil ≈69.2 c/lb, beans 1216¾ c/bu.</span></figcaption>
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616
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+
</figure>
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617
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+
<p>Three things to keep. The two multipliers, 0.022 and 0.11, because the whole market runs through them. That the board crush is a quote and not a margin, with three bases and a conversion cost standing between the two. And that more than half of a soybean's value is now a fuel — so a crusher who watches only beans is watching the smallest of his three prices.</p>
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618
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+
<section class="glossec"><h2 id="glossary">Glossary<a class="anchor" href="#glossary" aria-label="Link to this section">#</a></h2><p class="secnote">Every unit, convention and desk expression the show had introduced by episode 8. Nothing said in the audio should ever be unrecoverable.</p><details class="gloss"><summary>Open the glossary<span class="sl">131 terms</span></summary><div class="glossbody"><label class="gsearch"><span class="vh">Search the glossary</span><input type="search" id="gfilter" placeholder="Search terms…" autocomplete="off"></label><div class="gchips" role="group" aria-label="Filter by episode"><button type="button" class="gchip on" data-gep="all">All<span class="gn">131</span></button><button type="button" class="gchip" data-gep="1">Ep 1<span class="gn">37</span></button><button type="button" class="gchip" data-gep="2">Ep 2<span class="gn">15</span></button><button type="button" class="gchip" data-gep="3">Ep 3<span class="gn">11</span></button><button type="button" class="gchip" data-gep="4">Ep 4<span class="gn">13</span></button><button type="button" class="gchip" data-gep="5">Ep 5<span class="gn">12</span></button><button type="button" class="gchip" data-gep="6">Ep 6<span class="gn">13</span></button><button type="button" class="gchip" data-gep="7">Ep 7<span class="gn">14</span></button><button type="button" class="gchip" data-gep="8">Ep 8<span class="gn">16</span></button></div><dl id="glist"><div class="gterm" data-ep="8"><dt>45Z</dt><dd>the US clean fuel production credit, one of the two policy levers that sets American soybean oil demand <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="6"><dt>abandonment</dt><dd>planted area never harvested for grain, lost to drought, flood or a switch to silage <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="2"><dt>ABCD</dt><dd>the four historic majors, Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="2"><dt>arb</dt><dd>the full economics of moving a cargo, buy price plus freight and costs against the sale <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="2"><dt>asset-heavy</dt><dd>owning the physical chain, which converts a volatile trading margin into a steadier toll <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="2"><dt>asset-light</dt><dd>renting elevators, terminals and plants rather than owning them <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="1"><dt>at</dt><dd>the small word that introduces the offer side (462 bid, at 462 and a half) <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>bag (coffee)</dt><dd>60 kg, how the coffee trade counts volume <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="7"><dt>balance sheet</dt><dd>the one-page supply and demand statement for one crop and one marketing year, built so that supply minus use equals ending stocks and the page closes <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="1"><dt>bid</dt><dd>the price a buyer will pay <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="4"><dt>bill of lading</dt><dd>receipt, contract of carriage and document of title in one, whoever holds it owns the cargo <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="8"><dt>board crush</dt><dd>the processing margin implied purely by futures prices, meal price times 0.022 plus oil price times 0.11 minus the bean price, in dollars per bushel <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="1"><dt>bushel</dt><dd>volume measure standardized into weight, 60 lb for soybeans and wheat, 56 lb for corn <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>bushels per tonne</dt><dd>about 36.7 for soybeans and wheat, 39.4 for corn <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="3"><dt>calendar spread</dt><dd>the price difference between two months of the same contract, traded as one instrument at one price <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="4"><dt>cancelling date</dt><dd>the last day of the laycan, after which the counterparty may cancel <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="3"><dt>carry market (contango)</dt><dd>a curve with later months above nearer ones, the market pays for storage <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="2"><dt>carry-in</dt><dd>stocks left over from the previous season, the starting point of a balance sheet <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="7"><dt>carryout</dt><dd>ending stocks, the desk's one-word name for what is left at the end of the marketing year <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="1"><dt>cents per bushel</dt><dd>Chicago grain quoting unit, 4.39 dollars per bushel is spoken four thirty-nine <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="4"><dt>CFR</dt><dd>cost and freight, the seller pays the voyage to a named destination but risk still passes at loading <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="4"><dt>charter party</dt><dd>the contract hiring the vessel, between charterer and shipowner <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="4"><dt>CIF</dt><dd>cost insurance and freight, CFR plus the seller buys the marine insurance the buyer would claim on <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="8"><dt>conversion cost</dt><dd>the variable cost of turning beans into products, gas, power, hexane, labour and maintenance, typically 35 to 50 cents a bushel at a modern plant <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="1"><dt>conversion factors</dt><dd>36.7 bushels per tonne for wheat and beans and 39.4 for corn, so cents per bushel times 0.367 or 0.394 gives dollars per tonne <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="7"><dt>Crop Production</dt><dd>the USDA report published alongside WASDE carrying the survey-based yield and area figures <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="5"><dt>cross-hedge</dt><dd>hedging with a contract that is not your grade or your origin, which removes flat price and adds correlation risk <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="8"><dt>crush capacity</dt><dd>installed daily processing volume, a physical constraint that cannot be expanded inside a marketing year <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="1"><dt>cwt</dt><dd>hundredweight, 100 lb, the quoting unit for US rice and cattle <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>cwt (hundredweight)</dt><dd>100 lb, the quoting unit for US rice <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="3"><dt>Dec over</dt><dd>spread quoting convention that names the expensive leg, December fifteen over means December is 15 cents above the other month <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="1"><dt>deferred</dt><dd>months or shipment windows further out <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="2"><dt>demurrage</dt><dd>the penalty owed when a vessel is held beyond the agreed laytime <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="4"><dt>despatch</dt><dd>the reward paid when loading beats laytime, customarily half the demurrage rate <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="1"><dt>differential</dt><dd>the premium or discount to a named futures month, as in November plus 80, the negotiated part of a physical quote <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>differential (basis)</dt><dd>the premium or discount to a named futures month, quoted as plus 80 or minus 20 <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="6"><dt>distillers grains</dt><dd>DDGS, the protein co-product of ethanol production, sold back into the feed market <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="1"><dt>done</dt><dd>the word that seals a trade <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="4"><dt>draft survey</dt><dd>weighing a cargo by reading the ship's displacement before and after loading <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="8"><dt>draw area</dt><dd>the geographic catchment a crush plant buys its beans from, whose size sets how hard it must bid the local basis <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="5"><dt>durum</dt><dd>the pasta wheat, a separate species with its own thin market <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="6"><dt>ethanol grind</dt><dd>the rate at which ethanol plants consume corn, which slows when the plant margin turns negative and removes corn demand in steps <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="5"><dt>falling number</dt><dd>the sprout-damage test, a low number demotes milling wheat to feed wheat <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="7"><dt>feed and residual</dt><dd>the inferred demand line that carries livestock feeding together with every measurement error in the rest of the sheet <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="6"><dt>feed floor</dt><dd>the price at which feed substitution demand appears under a grain, corn setting the floor under feed wheat <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="6"><dt>feed wheat</dt><dd>wheat sold on energy and protein rather than milling specification, priced relationally against corn rather than at a flat price <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="1"><dt>firm</dt><dd>a tradable quote that binds if accepted, often with a time limit <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>five percent more or less</dt><dd>the contractual tolerance on cargo size, exercised at the seller's option <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>flat price</dt><dd>the full outright price level <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="2"><dt>flat price exposure</dt><dd>outright price risk, removed deliberately by hedging so only the basis remains <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="2"><dt>FOB</dt><dd>free on board, the cargo is priced at the load port with the buyer taking it from the ship's rail <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="3"><dt>front month</dt><dd>the nearest actively traded contract month, where liquidity is deepest <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="3"><dt>full carry</dt><dd>storage plus interest per month of holding grain, the practical ceiling on a carry spread <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="7"><dt>Grain Stocks</dt><dd>the quarterly USDA survey of physical inventories, from which the feed and residual line is backed out <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="8"><dt>gross processing margin</dt><dd>the industry name for product value minus raw material cost, the crush stated as a margin <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="5"><dt>hard red spring (HRS)</dt><dd>the 13.5 percent plus Minneapolis wheat bought to lift the protein of a grist <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="5"><dt>hard red winter (HRW)</dt><dd>the 11 to 12.5 percent bread wheat priced at Kansas City, the US wheat that competes with the Black Sea <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="6"><dt>harvested acres</dt><dd>area actually cut for grain, roughly 8 million acres below planted for US corn, and the denominator that yield is quoted against <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="8"><dt>hexane</dt><dd>the solvent used to extract the last of the oil from the flaked bean, and a real line in the conversion cost <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="1"><dt>hit</dt><dd>your bid was taken by a seller <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>hit the bid</dt><dd>to sell into someone else's bid <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="7"><dt>implied disappearance</dt><dd>use derived by subtraction rather than by measurement, the technique that produces the residual lines of a balance sheet <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="6"><dt>inclusion rate</dt><dd>the share of a single ingredient in a feed ration, capped by nutrition and by anti-nutritional factors <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="4"><dt>Incoterms</dt><dd>the standard three-letter trade terms that allocate cost and risk between buyer and seller <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="1"><dt>indication</dt><dd>a guide price that is not firm <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="3"><dt>initial margin</dt><dd>the deposit the clearing house takes per lot when a position is opened <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="5"><dt>inter-exchange spread</dt><dd>the price gap between two exchanges pricing related but different goods, such as Kansas City over Chicago <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="3"><dt>inverse (backwardation)</dt><dd>a curve with nearer months above later ones, the market pays a premium for immediate delivery <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="8"><dt>joint product</dt><dd>two outputs produced in fixed proportion from one input, so that neither can be made without the other <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="1"><dt>laycan</dt><dd>the window during which a vessel may present for loading <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="4"><dt>laytime</dt><dd>the contractually allowed time to load or discharge before demurrage begins <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="1"><dt>lift the offer</dt><dd>to buy from someone else's offer <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>lifted</dt><dd>your offer was taken by a buyer <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="3"><dt>limit move</dt><dd>an exchange-set maximum daily price change, trading pauses beyond it <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="2"><dt>line-up</dt><dd>the queue of vessels waiting to load at a port, a key driver of origin basis <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="1"><dt>lot</dt><dd>one futures contract, 5,000 bushels for Chicago grains, the unit desks count positions in <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="7"><dt>marketing year</dt><dd>the accounting year a crop is measured in, September to August for US corn and soybeans and June to May for US wheat <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="5"><dt>Matif milling wheat (EBM)</dt><dd>the Paris contract, 50 tonnes a lot quoted in euros per tonne and delivered into Rouen and Dunkirk <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="8"><dt>meal contract</dt><dd>CBOT soybean meal, 100 short tons, quoted in dollars per short ton <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="1"><dt>metric tonne</dt><dd>2,204.6 lb, the grain trading weight unit outside the US <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>month codes</dt><dd>F G H J K M N Q U V X Z for January through December, the Z is December <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="7"><dt>NASS</dt><dd>USDA's National Agricultural Statistics Service, the body running the surveys behind the published numbers <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="7"><dt>new crop</dt><dd>the marketing year about to begin, priced by the contract months that follow the coming harvest <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="4"><dt>nomination</dt><dd>formally naming the performing vessel under a cargo contract <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="8"><dt>NOPA</dt><dd>the National Oilseed Processors Association, whose monthly published crush figure makes US soybean crush a measured line rather than an inferred one <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="4"><dt>notice of readiness (NOR)</dt><dd>the master's formal declaration that the vessel has arrived and is ready, it starts the laytime clock <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="1"><dt>offer</dt><dd>the price a seller will accept <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="8"><dt>oil contract</dt><dd>CBOT soybean oil, 60,000 pounds, quoted in cents per pound <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="8"><dt>oil share</dt><dd>soybean oil's percentage of the combined value of the meal and oil produced from one bushel <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="7"><dt>old crop</dt><dd>the marketing year now ending, priced by the contract months before the new harvest arrives <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="2"><dt>paper</dt><dd>exchange futures and options, used by a physical desk to hedge rather than to speculate <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="2"><dt>physical (cash)</dt><dd>real cargoes under contract with specs and load windows, as opposed to paper <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="8"><dt>plant crush</dt><dd>what a physical plant actually earns, the board crush adjusted for bean, meal and oil basis and net of conversion cost <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="6"><dt>planted acres</dt><dd>area sown, the number that moves on farmer decisions and USDA area surveys <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="1"><dt>point</dt><dd>one hundredth of a cent per pound, how softs desks count moves <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>point (softs)</dt><dd>one hundredth of a cent per pound, so up 300 points means up 3 cents <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="6"><dt>pollination</dt><dd>the roughly one-week corn window in mid-July in the northern hemisphere after which the ear count is fixed and no forecast can change it <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="5"><dt>price assessment</dt><dd>a published daily price built by surveying brokers and exporters, used where no futures contract exists <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="1"><dt>prompt</dt><dd>the nearby month or shipment window, ready to move now <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="5"><dt>protein spec</dt><dd>the contractual protein percentage that turns the word wheat into a price <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="8"><dt>putting on the crush</dt><dd>buying bean futures and selling meal and oil futures against them in a 10-11-9 lot ratio, which fixes the processing margin <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="5"><dt>quality basis</dt><dd>the spread between the grade you own and the grade the futures contract delivers <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="6"><dt>ration</dt><dd>the formulated feed mix a mill grinds, in which every ingredient carries an inclusion limit and a substitution price against the others <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="2"><dt>residual</dt><dd>a figure obtained by subtraction, such as ending stocks, which absorbs any error in the larger numbers almost in full <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="8"><dt>reverse crush</dt><dd>the opposite position, short beans and long products, used when a processor expects to idle capacity rather than run it <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="3"><dt>roll</dt><dd>closing a hedge in one month and reopening it further out, executed as a spread trade <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="8"><dt>run rate</dt><dd>the share of installed capacity a plant is actually operating at, the lever a crusher pulls when margins move <span class="gep now">ep 8</span></dd></div><div class="gterm" data-ep="6"><dt>safrinha</dt><dd>Brazil's second corn crop, planted February to March into soybean stubble and pollinating April to May, about three quarters of Brazilian corn production <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="1"><dt>short ton</dt><dd>2,000 lb, used by US soybean meal, about 10 percent lighter than a metric tonne <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="5"><dt>soft red winter (SRW)</dt><dd>the low-protein soft wheat the Chicago contract delivers, used for cakes biscuits and crackers <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="2"><dt>space time form</dt><dd>the three transformations a merchant is paid for, geography, storage and processing <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="4"><dt>statement of facts</dt><dd>the port log of events both sides use to fight laytime claims <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="2"><dt>stocks-to-use</dt><dd>ending stocks divided by total use, the market's tension gauge <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="5"><dt>test weight</dt><dd>the density measure telling a miller how much flour comes out of a tonne <span class="gep">ep 5</span></dd></div><div class="gterm" data-ep="1"><dt>tick</dt><dd>smallest price increment, a quarter cent per bushel in Chicago grains, worth 12.50 dollars per lot <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="3"><dt>ticker</dt><dd>the short screen code a contract is spoken by, ZW wheat, ZC corn, ZS soybeans, ZM meal, ZL oil, KC coffee, SB sugar, CT cotton <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="7"><dt>total supply</dt><dd>carry-in plus production plus imports, the top block of a balance sheet <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="7"><dt>total use</dt><dd>domestic use plus exports, the bottom block of a balance sheet <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="7"><dt>trade average</dt><dd>the published mean of analysts' pre-report estimates, and therefore the expectation already contained in the price <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="6"><dt>trend yield</dt><dd>the yield a crop would produce on normal weather, the baseline against which a weather premium is measured <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="3"><dt>variation margin</dt><dd>the daily cash settlement of a position mark to market, paid the same day <span class="gep">ep 3</span></dd></div><div class="gterm" data-ep="2"><dt>war-risk premium</dt><dd>an insurance surcharge on a vessel's hull value for sailing into a conflict zone, quoted as a percentage <span class="gep">ep 2</span></dd></div><div class="gterm" data-ep="1"><dt>WASDE</dt><dd>the USDA monthly World Agricultural Supply and Demand Estimates report <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>washed out</dt><dd>offsetting trades cancel each other and only the price difference is settled <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>washout</dt><dd>cancelling two offsetting physical contracts by settling the price difference instead of shipping <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="6"><dt>weather premium</dt><dd>the gap between where a crop trades and where it would trade at trend yield, the price of a distribution of outcomes rather than of a forecast <span class="gep">ep 6</span></dd></div><div class="gterm" data-ep="4"><dt>weather working day</dt><dd>a laytime day that counts only when weather permits cargo work <span class="gep">ep 4</span></dd></div><div class="gterm" data-ep="7"><dt>whisper number</dt><dd>the expectation the market is actually trading into a report, which can sit away from the published trade average <span class="gep">ep 7</span></dd></div><div class="gterm" data-ep="1"><dt>work</dt><dd>leave an order resting with a broker <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>work an order</dt><dd>leave an order resting at your price and wait <span class="gep">ep 1</span></dd></div><div class="gterm" data-ep="1"><dt>workable</dt><dd>the quoted price is negotiable <span class="gep">ep 1</span></dd></div></dl><p class="gnone" hidden>No term matches that.</p></div></details></section>
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<a class="epprev" href="ep07.html"><span class="dir">← Previous</span><span class="ept">WASDE and Building a Balance Sheet</span><span class="epn">Episode 7</span></a>
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<details class="archive"><summary>All episodes<span class="sl">8 so far</span></summary><ol class="arclist"><li><a href="ep01.html"><b>01</b> The Units and the Language of the Desk</a></li><li><a href="ep02.html"><b>02</b> What a Merchant Does, and Why Basis Is the Whole Game</a></li><li><a href="ep03.html"><b>03</b> Futures Plumbing and the Shape of the Curve</a></li><li><a href="ep04.html"><b>04</b> The Physical Chain, End to End</a></li><li><a href="ep05.html"><b>05</b> Wheat: The Map and the Screens</a></li><li><a href="ep06.html"><b>06</b> Corn, Crop Calendars and Weather Risk</a></li><li><a href="ep07.html"><b>07</b> WASDE and Building a Balance Sheet</a></li><li class="here" aria-current="page"><a href="ep08.html"><b>08</b> The Soybean Complex and the Crush</a></li></ol></details>
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<span class="sig"><b>Soft Commodity Trading</b> — a daily briefing on physical commodity trading.</span>
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Sixty pounds of soybeans go into a crush plant. Forty four pounds of meal and eleven pounds of oil come out. ||| 0.4
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The crusher does not get to choose that ratio. He sells both, every day, whether he likes either market or not. ||| 0.6
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This is Soft Commodity Trading, episode eight. The soybean complex, and the margin that runs it. ||| 0.8
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Tuesday split the board. ||| 0.4
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Chicago December corn settled four eighty eight, down a cent and a half. November beans finished twelve sixteen and three quarters, up three quarters of a cent. ||| 0.5
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Wheat took the damage. Chicago September wheat fell ten and a quarter cents to six sixty four and a half. Kansas City September fell fifteen cents to seven forty three and three quarters, down about two percent. ||| 0.5
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But the move that mattered was inside the bean complex. September meal was up a quarter of a percent. September oil fell nearly two and a half percent. ||| 0.6
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Beans went nowhere and oil fell out of bed. That is not a bean story. That is an energy and policy story. ||| 0.5
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Crop ratings came in at sixty percent good to excellent for corn and sixty one for soybeans, each a point lower on the week. Eighty five percent of the bean crop is setting pods. China bought another five million bushels of new crop U S beans. ||| 0.6
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Now the geopolitical read, and today it is a policy read. More than half the value of a soybean depends on a regulatory decision. ||| 0.5
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American soybean oil is priced off biofuel rules. The renewable fuel volumes, and the clean fuel production credit the trade calls forty five Z. When those rules wobble, oil trades like a fuel and not like a food. ||| 0.5
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And in Argentina the government is cutting export taxes on a published schedule. Soybeans sit at twenty four percent, heading to twenty one by the end of twenty twenty seven and fifteen by the end of twenty twenty eight. ||| 0.5
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Meal and oil are taxed below the bean. That gap is not an accident. It is a subsidy for crushing at home instead of shipping the seed out whole. ||| 0.5
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Which is a good place to begin, because today's subject is the margin that gap exists to protect. ||| 0.8
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One seed. Three markets. ||| 0.5
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Beans are the raw material. Meal is a protein market. It competes with fishmeal and with corn in a feed ration, and it lives and dies on livestock. ||| 0.4
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Oil is a vegetable oil market. It competes with palm and canola in a fryer, and with diesel in a tank. ||| 0.5
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Those two markets have almost nothing to do with each other. The crusher is exposed to both, in a fixed proportion, forever. ||| 0.7
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Now the units, because the arithmetic does not work without them. ||| 0.4
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Chicago meal is quoted in dollars per short ton. A meal contract is one hundred short tons. ||| 0.4
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Chicago oil is quoted in cents per pound. An oil contract is sixty thousand pounds. ||| 0.4
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So one bushel of beans, one meal price in dollars a ton, one oil price in cents a pound. Three units, one plant. ||| 0.5
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Here is how you collapse them. Forty four pounds of meal out of a two thousand pound ton is zero point zero two two. Multiply the meal price by that and you have meal value per bushel. ||| 0.5
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Eleven pounds of oil, priced in cents, divided by a hundred, is zero point one one. Multiply the oil price by that and you have oil value per bushel. ||| 0.5
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|
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Add the two. Subtract the bean price. That is the board crush. Zero point zero two two and zero point one one. Learn them. ||| 0.7
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Tuesday's numbers. December meal, three hundred and twenty one dollars sixty a ton. ||| 0.4
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Three twenty one sixty times zero point zero two two is seven dollars and eight cents of meal in a bushel. ||| 0.5
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December oil closed Monday just under seventy one cents a pound, and came off about two and a half percent on Tuesday. Call it sixty nine and two tenths. ||| 0.4
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Sixty nine and two tenths times zero point one one is seven dollars sixty one of oil in a bushel. ||| 0.5
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Meal, seven oh eight. Oil, seven sixty one. Gross product value, fourteen dollars sixty nine a bushel. ||| 0.5
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November beans, twelve sixteen and three quarters. Twelve dollars and seventeen. ||| 0.4
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|
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Fourteen sixty nine minus twelve seventeen. Two dollars fifty two a bushel. That is the board crush. ||| 0.6
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|
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In the units the rest of the world uses, multiply by the thirty six point seven bushels in a tonne. Ninety two dollars and fifty cents a tonne of beans. ||| 0.7
|
|
34
|
-
Now look at what sits inside that number. Oil is seven sixty one of the fourteen sixty nine. ||| 0.4
|
|
35
|
-
Fifty two percent. The desk calls that the oil share. ||| 0.6
|
|
36
|
-
For most of the last century meal was the point of a soybean and oil was the by product. Meal ran sixty five percent of the value, sometimes more. ||| 0.5
|
|
37
|
-
Biofuel demand inverted it. Today more than half of what a crusher sells is a product whose price is set by fuel policy. ||| 0.5
|
|
38
|
-
Which is why Tuesday matters. Beans did not move. The crusher's margin did. ||| 0.8
|
|
39
|
-
Here is how the trade actually gets put on. ||| 0.5
|
|
40
|
-
CRUSHER: Where's December board crush? ||| 0.25
|
|
41
|
-
BROKER: Two fifty two, two fifty five. ||| 0.25
|
|
42
|
-
CRUSHER: I'll pay two fifty three for two hundred. ||| 0.25
|
|
43
|
-
BROKER: Done. Two hundred at two fifty three. Long beans, short meal, short oil. Ten, eleven, nine. ||| 0.7
|
|
44
|
-
Notice he named one price for three contracts. ||| 0.4
|
|
45
|
-
Buying the crush means buying bean futures and selling meal and oil futures against them. ||| 0.4
|
|
46
|
-
His plant is naturally long that margin. It buys beans and sells products every single day. ||| 0.4
|
|
47
|
-
The paper position is the mirror image, so the margin stops moving. He has fixed two dollars fifty three on two hundred lots of throughput. ||| 0.5
|
|
48
|
-
And notice the ratio. Ten bean contracts, eleven meal, nine oil. Fifty thousand bushels makes eleven hundred short tons of meal and five hundred and fifty thousand pounds of oil. The ratio is not a convention. It is the seed. ||| 0.8
|
|
49
|
-
Now the part that separates a trainee from a crush trader. ||| 0.5
|
|
50
|
-
That two dollars fifty two is not what a plant earns. It is a paper number built from three futures prices. ||| 0.4
|
|
51
|
-
A plant does not buy futures beans. It buys beans at its own gate, from farmers and elevators, at futures plus or minus a differential. ||| 0.4
|
|
52
|
-
It does not sell futures meal. It sells meal to a feed mill two hundred miles away, at futures plus or minus a differential. ||| 0.4
|
|
53
|
-
Same for the oil. So the plant crush is the board crush, plus three separate bases, minus the cost of turning seed into products. ||| 0.6
|
|
54
|
-
That conversion cost is real money. Natural gas, electricity, hexane, labour, maintenance. Call it thirty five to fifty cents a bushel of variable cost at a modern plant. ||| 0.5
|
|
55
|
-
Take the friendly end. Two fifty two of board crush, minus forty cents, is two dollars twelve, before a single basis number is added. ||| 0.7
|
|
56
|
-
So why is a two dollar margin not competed away? ||| 0.5
|
|
57
|
-
Because you cannot make more crushing capacity this week. A new plant is two to three years and hundreds of millions of dollars. ||| 0.5
|
|
58
|
-
When margins are wide, every plant already runs flat out. The constraint binds. And a binding constraint holds a margin open. ||| 0.6
|
|
59
|
-
What actually adjusts is the bean basis. Plants bid harder for cash beans at the gate to keep the line full. ||| 0.4
|
|
60
|
-
So the board crush stays fat on the screen while the plant crush quietly compresses. ||| 0.5
|
|
61
|
-
That is the most common mistake made reading this market. The screen shows a wide margin. The plants are not earning all of it. The farmer is taking a slice, in the basis. ||| 0.8
|
|
62
|
-
And when the crush goes negative? ||| 0.4
|
|
63
|
-
The textbook says the plant shuts. The plant usually does not. ||| 0.6
|
|
64
|
-
Two reasons. Stopping and restarting a crush line costs money and days. And most of the meal in next month's beans is already sold forward. ||| 0.5
|
|
65
|
-
The plant is not choosing between running and not running. It is choosing between a negative margin, and a negative margin plus a default on its meal book. ||| 0.6
|
|
66
|
-
So the real option is not on the board crush at all. It is on the variable margin, over cash costs, on the volume that is not already committed. ||| 0.5
|
|
67
|
-
And the thing repairs itself. Run rates fall. Meal supply tightens. Meal rallies. The crush widens. The plants come back. ||| 0.5
|
|
68
|
-
Which is why a deeply negative crush is usually a reason to buy meal, not to sell it. ||| 0.8
|
|
69
|
-
One last number, and it is the one to carry out of here. ||| 0.4
|
|
70
|
-
That margin is two dollars fifty two, sitting on fourteen dollars sixty nine of gross product value. ||| 0.4
|
|
71
|
-
So a one percent move in the products is about fifteen cents. Fifteen cents is six percent of the entire margin. ||| 0.5
|
|
72
|
-
Tuesday's oil move on its own, two and a half percent, one and three quarter cents a pound, was worth nineteen and a half cents a bushel. ||| 0.5
|
|
73
|
-
Nineteen and a half cents against a two dollar fifty margin. Eight percent of a crusher's economics, from one afternoon in a market that is not soybeans. ||| 0.8
|
|
74
|
-
Three things to keep. ||| 0.4
|
|
75
|
-
First, the two multipliers. Meal times zero point zero two two, oil times zero point one one, minus the bean. Everything in this market starts there. ||| 0.5
|
|
76
|
-
Second, the board crush is a quote, not a margin. The plant's number is the board, plus three bases, minus conversion cost. ||| 0.5
|
|
77
|
-
Third, more than half a soybean's value is now a fuel. A crusher who only watches beans is watching the smallest of his three prices. ||| 0.7
|
|
78
|
-
Tomorrow, vegetable oils and biofuels. Palm, the export policies that price it, and how a fuel mandate reaches a fryer. ||| 0.5
|
|
79
|
-
The written edition has the crush laid out as a waterfall, the sensitivity, and today's quiz with full solutions. ||| 0.4
|
|
80
|
-
This has been Soft Commodity Trading. ||| 0.6
|