Soybean crush

On May 10, a soybean processor decides that it wants to hedge its October processing margin for 60 Million lbs of soybeans. The processor knows that

60 lbs of soybeans (= 1 bu)

will yield

11 lbs of soybean oil 44 lbs of soybean meal (assuming 48% protein)

and the contract specifications

soybeans soybean oil soybean meal

5,000 bu / contract 60,000 lbs / contract 100 tons (2,000 lbs/short ton) / contrac

The processor observes the following futures prices on May 10:

soybeans (November contract) soybean oil (December contract) soybean meal (December contract)

9.715 US$/bu 0.3773 US$/lbs 286.30 US$/short tonne

How many contracts of each commodity does the processor need?

Which contracts does the processor buy, which does the processor sell on May 10? Set up the hedge and determine the processors expected crush margin (=profit margin) on May 10.

Date	Cash Market	Futures Market	Basis
May 10	hedge October processing margin, expected margin $/bu of soybeans
Oct 5
Nov 4

On October 5, the processor lifts the hedge for the soybeans and buys them in the cash market. On November 4, the processor lifts the hedge for the outputs and sells them in the cash market. Given the following prices, complete the above table and determine the processors actual crush margin in $/bu?

	October 5		November 4
	cash	futures	cash	futures
Soybeans (November) Soybean oil (December) Soybean meal (December)	8.755 $/bu	8.810 $/bu	0.3445 $/lbs 241.05 $/short tonne	0.3460 $/lbs 241.26 $/short tonne