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Implied Intercommodity Ratio Spreads

Implied Intercommodity Ratio Spreads

Implied intercommodity ratio spreads are available for specific agricultural, energy, and interest rate products. For these products, outright orders in the leg markets will create implied intercommodity spread orders and, conversely, intercommodity spread orders create implied orders in each component leg market. Implied bids and offers become eligible quotes but are not disseminated in market data. Trades only match at the fixed ratio of contracts defined per product. Implied bids are rounded down to the nearest tick and implied offers are rounded up the nearest tick.

  • Outright orders in the leg markets will create implied intercommodity spread orders.

  • Trades only matching at the fixed ratio of contracts. Implied bids are rounded down to the nearest tick and implied offers are rounded up the the nearest tick.

  • Explicit intercommodity spread orders entered into CME Globex create implied orders in each component leg market. Implied bids and offers become eligible quotes but are not disseminated in market data.

  • Implied eligibility is indicated in the MDP 3.0 - Security Definition with tag 871-IntAttribType=24 (eligible) and tag 872-InstAttribValue=19 (implied eligible).

Contents

For additional information, see:

Agricultural Products - Soybean Crush Spread

The soybean crush spread represents the price differential between the raw soybean product and the yield of its two processed products, i.e., the processing margin. The fixed ratio per leg represents the amount of soybean oil and soybean meal that can be obtained from the given amount of raw soybeans. The soybean crush has two configurations:

  • Soybeans +10 / Bean Oil -9 / Bean Meal -11

  • Soybeans +10 / Bean Oil -9 / Bean Meal -11/ Soybean Crush Combo +1 (option against the underlying legs)

The crush margin is calculated as follows.

Ratio

10

11

9

 

 

 

Margin

3500

2000

1500

Total

90% Credit

Margin

RatioxMargin

35000

22000

13500

63450

7050

7050

Energy Products - Crack Spread

The term 'crack spread' derives from the refining process which "cracks" crude oil into its constituent products. The crack spread, or theoretical refining margin, is quoted in dollars per barrel. To obtain it, the combined value of gasoline and heating oil must first be calculated. This value is then compared to the price of crude. Since crude oil is quoted in dollars per barrel and the products are quoted in cents per gallon, heating oil and gasoline prices must be converted to dollars per barrel by multiplying the cents-per-gallon price by 42 (there are 42 gallons in a barrel). If the combined value of the products is higher than the price of the crude, the gross cracking margin is positive. Conversely, if the combined value of the products is less than that of crude, then the gross cracking margin is negative. This sum is then divided by the number of barrels of crude to reduce the spread value to a per-barrel figure.

Crack 1:1 Pricing

Pricing for the 1:1 Crack spread is calculated: Crack Spread Price = [(42 * Leg 1)/100] – Leg 2.

  • An arriving Crack spread order may fill at the entered price or at a fractionally better price than that at which it was enter