An intercommodity futures spread combines a long position in one commodity with a short position in another related commodity. The trade targets a change in their price relationship, rather than a rise or fall in either market alone. Wheat against corn, and refined fuels against crude oil, are examples.
Within the broader category of futures spread trading, intercommodity positions require particular care with contract sizes, price units and trading ratios. Buying one contract and selling another does not automatically create a balanced hedge. The economic relationship matters, but so does the dollar exposure behind each leg.
How Intercommodity Futures Spreads Work
Consider a spread defined as commodity A minus commodity B, with both prices expressed in comparable units and equal exposure to each price change. Buying that spread means buying A and selling B. The position gains before costs when the difference increases; selling the spread takes the opposite position.
Suppose A rises by $10 per unit and B rises by $6. An equally weighted long spread gains $4 per matched unit. It can also gain when both markets fall: if A falls by $6 and B falls by $10, the difference still increases by $4.
This is relative performance, not necessarily opposite price movements. Both legs can make money, both can lose money, or one can offset part of the other’s result. Calculate each leg separately before combining the results.
Define the subtraction order before describing a spread as widening or narrowing. If A minus B moves from −20 to −10, its value has increased even though the absolute gap between the prices has become smaller.
An intercommodity spread differs from a futures calendar spread, which normally compares different delivery months of the same commodity. Intercommodity trades compare different commodities or products. Their contract months may match, but a mismatch can introduce seasonal and timing exposure alongside the commodity relationship.
Common Intercommodity Futures Spreads
Wheat Against Corn
A wheat–corn spread expresses a view on the relative value of two crops. A trader expecting wheat to strengthen relative to corn might buy wheat futures and sell corn futures. That view could reflect different supply conditions or demand expectations rather than a forecast that all grain prices will rise.
Related markets need not move together indefinitely. A supply problem affecting one crop can change the relationship without creating a temporary pricing error. The connection between crop prices and planting decisions is covered in CME Group’s overview of grain intercommodity spreads.
The Soybean Crush
The soybean crush links soybeans with the meal and oil produced from processing them. It compares the value of the outputs with the cost of the input.
A processor can hedge input and output prices by buying soybean futures and selling soybean meal and soybean oil futures. A trader expecting the value of those outputs to rise relative to soybeans would take the opposite direction: buy the product basket and sell soybeans.
The distinction matters. Trading a processing margin and hedging a processing business are not automatically the same position. Always write down the actual purchases and sales rather than relying on the strategy’s name.
Crude Oil Against Refined Products
Crack spreads compare refined fuel prices with crude oil prices. A long processing margin position buys refined products and sells crude. It benefits when the properly weighted product basket strengthens relative to the crude input.
Unlike a simple two-market comparison, a crack spread can contain several products. That makes the ratio and unit conversions part of the trade, not just details for the spreadsheet.
Choosing the Contract Ratio
Start with the exposure you want to represent. A physical conversion ratio, equal dollar values and a statistical hedge ratio answer different questions.
A physical ratio attempts to match quantities of inputs and outputs. It suits a processing relationship, although a simplified futures basket will not reproduce every feature of an actual plant’s operations.
A dollar-based ratio attempts to balance the market value of the long and short positions. Equal dollar values do not guarantee equal sensitivity to price changes. One commodity may move much more sharply than the other.
A statistical ratio uses historical price behaviour to estimate how much of one contract should offset another. That estimate depends on the observation period and may stop working when market conditions change.
Check contract quantities, quote units and the dollar value of a price movement on every leg. Futures contracts generally require whole contract quantities, so rounding can leave residual exposure.
Also distinguish a price ratio from a tradable spread. A chart of A divided by B may help assess relative value, but it does not directly show the profit or loss from fixed quantities of futures contracts.
Worked Example: A Long 3:2:1 Crack Spread
A standard long 3:2:1 crack spread buys two RBOB gasoline futures contracts and one ultra-low sulfur diesel contract, while selling three WTI crude oil contracts. RBOB and diesel contracts each represent 42,000 gallons; WTI contracts represent 1,000 barrels. These sizes and the trade direction are set out in CME Group’s explanation of trading crack spreads.
Because there are 42 gallons in a barrel, multiply the fuel prices quoted per gallon by 42 before comparing them with crude quoted per barrel. The processing margin per barrel is:
3:2:1 crack = [(2 × gasoline price × 42) + (diesel price × 42) − (3 × crude price)] ÷ 3
The following hypothetical trade assumes the stated entry and exit prices are achieved. It excludes commissions, fees and any additional execution costs.
| Futures leg | Position | Entry price | Exit price | Gross profit or loss |
|---|---|---|---|---|
| WTI crude oil | Short 3 contracts | $75.00 per barrel | $77.00 per barrel | −$6,000 |
| RBOB gasoline | Long 2 contracts | $2.30 per gallon | $2.32 per gallon | +$1,680 |
| Ultra-low sulfur diesel | Long 1 contract | $2.50 per gallon | $2.51 per gallon | +$420 |
| Combined position | 6 contracts | Crack: $24.40 per barrel | Crack: $23.10 per barrel | −$3,900 |
At entry, the calculation is [(2 × $2.30 × 42) + ($2.50 × 42) − (3 × $75)] ÷ 3, giving $24.40 per barrel. At exit, the same calculation gives $23.10.
The spread has declined by $1.30 per barrel across 3,000 barrels of crude exposure. That produces the $3,900 gross loss.
Every commodity price rose, yet the long crack lost money. The product gains were too small to offset the loss on the short crude position. This is why an outright bullish energy forecast is not enough to justify a long crack spread.
The opening $24.40 figure is also not an upfront payment or guaranteed profit. It describes the price relationship. A crack spread is a gross margin indicator, not a refinery’s net earnings, because it excludes other operating and fixed costs; the EIA’s 3:2:1 crack spread explanation makes that distinction.
What Can Change the Relationship?
A useful intercommodity trade needs an explanation for why one side should outperform the other. “The spread looks cheap” is a starting observation, not a complete trading case.
Separate shared influences from influences affecting one market more directly. For an agricultural pair, ask whether the proposed change comes from planting choices, crop conditions or demand. For a processing spread, consider whether the pressure sits with raw materials, finished products or processing capacity.
Test the opposite outcome too. If the trade assumes stronger product prices, what happens if input costs rise faster? If it assumes two substitute commodities will move closer together, what could keep them apart?
A historical average is not a promised destination. Compare equivalent seasons and contract months, and check how any continuous price chart handles contract rolls. A visually attractive relationship can be misleading if the underlying contracts change at different times.
Margin Offsets and Cash Requirements
Clearing models may recognize offsets between related positions, reducing the collateral requirement compared with holding the legs without an offset. Eligibility and the size of any credit depend on the positions and margin model. ICE’s margin methodology describes portfolio offsets alongside possible extra requirements for concentration and illiquid positions.
A smaller deposit does not make an adverse price move smaller. In the crack example, the $3,900 loss remains $3,900 regardless of the initial margin posted.
Before entry, obtain the requirement for the exact contracts, months and quantities. Also establish what happens if only one leg fills, a position is reduced, or a contract approaches expiry. Budget for adverse settlement cash flows rather than treating the opening margin as the entire funding requirement.
Position sizing should begin with a tolerable dollar loss under a stress scenario. The amount a platform permits you to trade is a separate question. Our guide to futures spread margin and funding risk covers that distinction in more detail.
Executing and Closing the Spread
Where available, an exchange-listed spread order lets you specify the relationship you want to trade. Check whether the platform sends a native exchange spread or manages separate orders on your behalf. Similar-looking order tickets can handle execution differently.
Entering the legs separately creates legging risk: one order can fill while the other remains open or moves to a worse price. Until the remaining trade executes, the position may carry exposure you did not intend to hold.
Assess the available quantity in the spread and underlying contracts. An attractive displayed price may cover only part of the intended position; order book depth and trade size affect the achievable result.
Include costs across every leg and both directions. The example contains six contracts at entry and another six contract transactions when fully closed. A small expected change in the spread can disappear after commissions, exchange charges and execution costs.
Plan the exit before entry. Check each contract’s trading deadline, notice dates and settlement method where applicable. Different commodities do not cancel each other’s delivery obligations simply because they belong to one trading strategy.
Risk Checks Before Entry
An intercommodity spread has no automatic loss ceiling simply because it contains both long and short futures. The relationship can move against the position, and market conditions can obstruct an exit. Spread positions are not necessarily less risky than outright positions, and stop orders do not guarantee an intended loss limit; both warnings appear in the CFTC’s commodity trading risk disclosure provisions.
Before placing an order, confirm:
- Direction: Which contracts are bought and sold, and what change produces a gain?
- Ratio: Do contract quantities represent the intended physical or financial exposure?
- Dollar sensitivity: What does an adverse move on each leg cost?
- Funding: Can the account meet losses and higher collateral requirements?
- Exit: Can all legs be closed before unwanted settlement or delivery exposure?
A sound intercommodity spread starts with an economic relationship and ends with executable contract quantities. The trade should still make sense after converting the units, applying costs and testing an adverse outcome. Two related markets provide a trading relationship, not a guarantee that losses will offset.