Futures Spread Trading: Calendar, Crack and Crush Spreads Explained

A futures spread is a position that buys one futures contract and sells a related one at the same time, so the result depends on the difference between the two prices rather than on the price level. If you buy July corn and sell December corn, you make or lose money as the gap between July and December changes, whether corn as a whole goes up or down.

In short: Spreads come in three main kinds: calendar spreads (same commodity, different months), inter-commodity spreads (related commodities, such as wheat and corn), and processing spreads (a raw input against its products, such as the crack spread for oil refining and the crush spread for soybean processing). Exchanges list many spreads as single instruments and usually charge lower margin for them, because the two legs tend to offset. Lower margin does not mean low risk: spreads can move sharply, especially near expiry.

Why spreads exist

Many businesses care about a price difference more than a price level:

A refiner buys crude oil and sells gasoline and diesel. Its margin is the gap between them.
A soybean crusher buys beans and sells meal and oil.
A grain merchant storing corn from harvest to summer earns the difference between the harvest price and the later price, minus storage costs.

These firms hedge with spreads. Speculators and market makers trade spreads too, and in doing so they provide liquidity that keeps related prices in line. For who does what in the market, see who trades futures.

Calendar spreads

A calendar spread (also called an intra-commodity or time spread) buys one delivery month and sells another of the same contract. Buying the nearer month and selling the later one is commonly called a “bull spread” in grains; the reverse is a “bear spread.”

Calendar spreads are driven by the shape of the futures curve. When later months trade above nearby months, the market is in contango, usually because of storage and financing costs. When nearby months trade above later months, it is in backwardation, usually because supplies are tight now. The background is in contango and backwardation.

Worked example: a corn calendar spread

Real CBOT corn specs: 5,000 bushels per contract, tick of 1/4 cent per bushel = $12.50. Prices are illustrative.

A trader buys one July corn contract at $4.70 and sells one December contract at $4.60. The spread (July minus December) is +$0.10.

Some weeks later, a weather scare tightens old-crop supplies. July is at $4.95 and December at $4.70. The spread is now +$0.25.

Leg	Entry	Exit	Change	P&L
Long July	$4.70	$4.95	+$0.25	+$1,250
Short December	$4.60	$4.70	+$0.10	-$500
Net	+$0.10	+$0.25	+$0.15	+$750

Check: 15 cents is 60 ticks, times $12.50 = $750. Both corn prices rose, but the spread result depends only on the change in the gap. If the spread had narrowed from +$0.10 to -$0.05, the position would have lost 15 cents, or $750, even if both prices had risen.

Inter-commodity spreads

An inter-commodity spread pairs two different but related contracts, such as:

Wheat versus corn (both feed grains at the margin)
Brent versus WTI crude oil (two benchmark crudes in different locations)
Different Treasury futures maturities (for example, the yield curve between 2-year and 10-year notes)

Because the contracts have different sizes and tick values, traders choose a ratio of contracts so that each leg has similar dollar exposure. Interest rate spreads are often weighted by the price sensitivity of each contract; see interest rate futures explained.

The crack spread: refining margins

Refining “cracks” crude oil into products. The crack spread measures the gross margin from buying crude and selling products. A common benchmark is the 3:2:1 crack: three barrels of crude yield roughly two barrels of gasoline and one barrel of distillate (diesel or heating oil).

Real NYMEX specs:

Contract	Size	Quote	Tick value
WTI crude oil (CL)	1,000 barrels	$ per barrel	$0.01 = $10
RBOB gasoline (RB)	42,000 gallons	$ per gallon	$0.0001 = $4.20
NY Harbor ULSD (HO)	42,000 gallons	$ per gallon	$0.0001 = $4.20

Product prices are quoted per gallon, crude per barrel, and a barrel holds 42 gallons, so products must be converted.

Worked example: calculating a 3:2:1 crack

Illustrative prices: WTI $70.00 per barrel, RBOB $2.20 per gallon, ULSD $2.50 per gallon.

Gasoline per barrel: $2.20 x 42 = $92.40
ULSD per barrel: $2.50 x 42 = $105.00
Product revenue: (2 x $92.40) + (1 x $105.00) = $289.80
Crude cost: 3 x $70.00 = $210.00
Gross margin: $289.80 - $210.00 = $79.80 for three barrels
3:2:1 crack: $79.80 / 3 = $26.60 per barrel

In futures terms, one 3:2:1 unit is 3 CL, 2 RB, and 1 HO contracts (3,000 barrels of crude against 2,000 barrels of gasoline and 1,000 barrels of diesel). At $26.60 per barrel, the unit represents $26.60 x 3,000 = $79,800 of gross margin.

A refiner worried that margins will shrink could sell the crack (sell products, buy crude) to lock in today’s spread. Real refinery margins also depend on the crude grade, location, yields, and operating costs, so the futures crack is only an approximation.

The crush spread: soybean processing

Crushing soybeans produces meal (animal feed) and oil. The board crush is the value of the meal and oil from a bushel of beans, minus the price of the beans.

Real CBOT specs:

Contract	Size	Quote	Tick value
Soybeans	5,000 bushels	cents per bushel	1/4 cent = $12.50
Soybean meal	100 short tons	$ per short ton	$0.10 = $10.00
Soybean oil	60,000 pounds	cents per pound	0.01 cent = $6.00

The standard industry approximation is that a 60-pound bushel yields about 44 pounds of meal and 11 pounds of oil.

Worked example: calculating the board crush

Illustrative prices: soybeans $10.50 per bushel, meal $300 per short ton, oil 45 cents per pound.

Meal value: 44 lb is 0.022 short tons (44 / 2,000), so 0.022 x $300 = $6.60
Oil value: 11 lb x $0.45 = $4.95
Product value: $6.60 + $4.95 = $11.55
Board crush: $11.55 - $10.50 = $1.05 per bushel

A balanced crush position uses about 10 soybean : 11 meal : 9 oil contracts. Ten soybean contracts are 50,000 bushels. That yields 2,200,000 pounds of meal (1,100 short tons, or 11 meal contracts) and 550,000 pounds of oil (just over 9 oil contracts of 60,000 pounds).

“Putting on the crush” means buying beans and selling meal and oil, which is what a processor’s business already does physically. A “reverse crush” is the opposite.

How spreads are traded and margined

Exchanges such as CME Group list many spreads as single instruments. An order to buy a July-December corn spread at +10 cents executes both legs at once, so there is no risk of filling one leg and missing the other (“legging risk”). Crack and crush spreads also trade as listed strategies.

Because the legs offset, clearing houses usually charge less margin for a recognised spread than for the two legs separately. The required margin depends on how historically correlated the legs are and on current volatility, and it changes often. Check the exchange’s current margin schedule rather than relying on any number in an article. How margin is set and called is explained in how futures margin works.

What can go wrong

Spreads are not risk-free. The correlation between legs can break down. In April 2020 the WTI May-June calendar spread moved from -$6.76 to -$58.06 per barrel in a single session, according to the CFTC staff report; see negative oil prices in April 2020.

Expiry and delivery. The nearby leg of a calendar spread can be squeezed as it approaches delivery, especially in physically settled markets with limited storage.

Old crop versus new crop. Grain spreads across crop years (for example, July versus December corn) depend on two different harvests and can behave very differently from spreads within one crop year.

Margin can rise. Spread margins are lower until volatility rises, then they can increase quickly.

Size creep. Because spread margins are low, it is easy to hold many more contracts than you would outright. If the spread moves sharply, the loss scales with the full position.

Approximations. Crack and crush ratios are rules of thumb. A real refiner or crusher has yields, costs, and local prices that differ from the board calculation.

The short version

A futures spread profits or loses from the change in the gap between two related prices. Calendar spreads trade the shape of one commodity’s curve; inter-commodity spreads trade the relationship between related markets; the crack and crush spreads trade processing margins, calculated by converting products and inputs to common units. Exchanges list spreads as single instruments and usually margin them less than outright positions, but the gap itself can move violently, so lower margin should not be read as lower risk.