Soybean Trading


The Ultimate Guide

Why are Soybeans Valuable?

Soybeans are an edible legume native to Asia and an important source of protein in many modern diets.

Chinese farmers first domesticated soybeans around 1100 BC. Since that time, cultures around the world have cultivated the crop as a food source. In the 1920s, the A.E. Staley Manufacturing Company began crushing soybeans and produced two new products: unrefined soybean oil and defatted soybean meal. Soybean oil soon became an important ingredient in margarine and shortening, while soybean meal became a staple in livestock feed.

Today soybeans, soybean oil, and soybean meal are all important commodities in the global marketplace. 

How are Soybeans Grown?

Soybean plants grow in any climate with a warm growing season, water and sun.

Farmers plant seeds in rows in a field, and in four to seven days they sprout into plants. The planting season in the United States is between May and July, and harvesting occurs by around September when the crop has fully matured.   

Soybeans grow in very similar conditions to corn, so many farmers grow both crops on the same acreage.

soybean plants in a field
Soybean plantation via Pixabay

At the beginning of the planting season, farmers choose which crop to plant. To make this decision in an economically rational way, they compare the new crop futures prices for each of the two commodities.  December is the new crop month for corn, while for soybeans it’s November.

The relationship between corn and soybean prices, therefore, is an important inter-commodity spread.

The corn-soybean spread is the number of bushels of corn needed to buy a bushel of soybeans. When the ratio is below 2.2 to 1, corn is historically expensive, while a ratio above 2.4 to 1 signals historically expensive soybeans. 

Where Do Soybeans Come From?

The United States is the largest producers of soybeans, and typically accounts for about one-third of the global supply.

Brazil and Argentina are the second and third largest producers, respectively. These three countries account for over 80% of global soybean production annually. Other significant producers include China, India, Paraguay, Canada, Mexico and the European Union. 

world map to show the biggest soybean producers

Top 9 Soybean Producing Regions

RankFlagRegion
#1Flag of USAUnited States of America
#2Flag of BrazilBrazil
#3Flag of ArgentinaArgentina
#4Flag of ChinaChina
#5Flag of IndiaIndia
#6Flag of ParaguayParaguay
#7Flag of CanadaCanada
#8Flag of MexicoMexico
#9Flag of EUEuropean Union

The largest importers of soybeans include China, the European Union, Mexico, and Japan.

The major exporting countries are the United States and Brazil, which each export about half of their annual production.

Soybeans contain about 18% oil. A 60-pound bushel of soybeans yields about 11 pounds of oils and 47 pounds of soybean meal. Although soy food products such as tofu and soy milk are part of many diets, the majority of soy production is used in other ways:

Top 3 Uses of Soybeans

Use of SoybeanDescription
Soybean OilSoybean processors extract oil from the soybean, which can then be refined into cooking oil or used as an ingredient in food products such as margarine, salad dressings and mayonnaise. Many breads, crackers, cakes, cookies and pies also contain soybean oil. Biodiesel producers also buy soybean oil and use it to make fuels.
Soybean MealThe soybean meal that remains after oil extraction can be toasted and prepared as animal feed for poultry, pigs, cattle and other farm animals.
Miscellaneous Uses
Soy is used in a variety of other products:
Bio-composite building materials.
Particleboard, laminated plywood and lumber products.
Commercial carpets and home upholstery.
Solvents and industrial lubricants.
Soy ink and crayons.
Foams for automobile upholstery.

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What Are Some Soybean Trading Strategies?

Soybean traders don’t have to have an absolute opinion on the direction of soybeans in order to trade the commodity. Rather, there are a variety of ways to bet on soybeans relative to the rice of other commodities or instruments. These are called spread trades, and they involve simultaneously buying and selling two different soybean contracts.

Here are three ways you can execute popular spread trades used by soybean traders:

  1. Crush Spread: Soybeans are processed into soybean oil and soybean meal in a process known as crushing. The crush spread is the difference between the price of soybeans and its byproducts (soybean oil or soybean meal). Traders who go long with the crush spread will buy soybeans and sell soybean oil or soybean meal. Many producers of soybean oil or soybean meal use the crush spread as a means to hedge the risk that the prices they receive for their final products will fall in value.
  2. Reverse Crush Spread: In the reverse crush spread, traders buy the final products (soybean oil or soybean meal) and sell soybeans. In essence, these traders benefit if supply and demand factors lead to a rise in the price of the finished products relative to the input costs (soybeans).
  3. Grain Spreads: Other popular spread trades involve trading soybeans against other grain crops such as corn or wheat. Since these commodities often move in tandem with one another, this allows traders to capture divergences in the price of one relative to another.

Since soybean prices are correlated with the price of other grains and with finished soy products, spread trades are generally much less volatile than buying soybeans outright.

What Drives the Price of Soybeans?

The price of soybeans is usuallyhighly correlated with the price of other grains such as corn and wheat.

Many of the economic and trade factors that move soybean prices affect agricultural commodities in general including:

  1. US Production
  2. The US Dollar
  3. Emerging Market Demand
  4. Alternative Oils
  5. Ethanol Subsidies
  6. Health News

US Production

The United States is the largest producer and exporter of soybeans, so events in the country bear watching. Political factor such as crop subsidies, for example, can have a significant effect on prices.In addition, US weather conditions could impact production numbers.

The US Dollar

The US currency is the world’s reserve currency. As a result, soybeans and other commodities are quoted in US dollars. Soybean producers receive fewer dollars for their product when the US currency is strong and more dollars when the currency is weak.In addition, since the United States is the leading soybean producer, its price will likely continue to be quoted in US dollars.

Emerging Market Demand

China imports more soybeans than it produces. As its economy expands, its demand for agricultural commodities will grow. Similarly, India and emerging countries in Africa will require more food to feed their people as their economies grow. As emerging market countries grow wealthier, their consumption of meat will likely increase. Since soymeal is used to produce livestock feed, this should also boost prices for the commodity. Of course, if emerging economies suffer economic setbacks, then soybean prices would probably suffer.

Alternative Oils

Oils produced from soybean meal compete with many other oil meals including castor, rapeseed, linseed, and cottonseed. These meals are increasingly taking market share away from the soybean oil market. Ultimately, the pricing and availability of alternative oils can have an effect on soybean pricing.

Ethanol subsidies

The US government heavily subsidizes corn farmers to boost ethanol production. US farmers make choices about growing corn and soybean crops at the beginning of the growing season. If corn subsidies were to end, farmers might devote more acreage to soybeans. The resulting increase in soybean supply would probably put pressure on prices.

Health News

Health News: News about the health benefits or detriments of consuming an agricultural commodity can often have a long-term impact on demand. Therefore, traders should pay close attention to medical studies on the health effects of soy consumption. If new information becomes available, prices could respond accordingly.

3 Reasons You Might Invest in Soybeans?

Investors purchase agricultural commodities such as soybeans for a variety of reasons, but the following are most common:

  1. Inflation and Weak US Dollar Hedge
  2. Bet on Demand Growth
  3. Portfolio Diversification

Inflation and Weak US Dollar Hedge

Soybeans are a way to bet on a weak US dollar and higher inflation.Since agricultural commodities such as soybeans are priced in US dollars, the performance of the world’s largest economy plays a crucial role in their pricing. Easy-money policies from the US Federal Reserve Bank have kept the US dollar weak. Furthermore, US central bankers are likely to continue these policies to support consumer borrowing and spending. A weak dollar could stoke inflation concerns and bolster soybean prices.

Bet on Demand Growth

Soybeans are likely to be a big beneficiary of strong global growth, especially in emerging market economies. Their demand for livestock feed and in oils will probably grow as the developing world becomes richer. Demand in the developed world may also outstrip supply in the coming years. Factors such as growth in biodiesels could contribute to this demand.

Portfolio Diversification

Most traders have the vast majority of their assets in stocks and bonds. Commodities such as soybeans provide traders another way to diversify and reduce the overall risk of their portfolios.

Should I Invest in Soybeans?

Investors who want exposure to soybeans should consider buying a basket of commodities that includes other agricultural staples such as wheat, corn, barley, and sugar. For true diversification, they should add metals and energy as well.Purchasing a basket of commodities helps protect traders from the volatility of any individual commodity.It also adds overall diversification to an investment portfolio.

There are two specific trends that could boost soybean prices in the years ahead:

Emerging market demand: The development of emerging economies could boost soybean demand. As people in these countries accumulate wealth, they will probably start eating a more varied diet. The demand for livestock feed, soybean oils, and soy food products may grow.

various soy products
Soybean Products via Publicdomainpictures.net

Climate change: Global warming trends have the potential to wreak havoc on the production of many different crops including soybeans.If recent weather patterns continue, the world’s supply of food may not be able to meet demand in the years aheadInvesting in agricultural commodities is a way to benefit from this trend.

 However, traders should also consider the risks of investing in soybeans:

  1. A strong US dollar could drive prices lower.
  2. Overproduction by large suppliers could depress prices. This scenario could unfold, for example, if the United States ends corn subsidies.
  3. More bad news on the health front could weaken consumer demand for soy products.

Expert Opinions on Soybeans

 Experts see both potential risks and rewards from investing in soybeans.

  “In general, I think the commodity complex is poised to move higher.”

Robert Chesler, vice president of the foods group at INTL FCStone.

 Jim Rogers, who co-founded the Quantum Fund and created the Rogers International Commodity Index, has been a long-time bull on the agricultural commodity sector and believes it will make traders very rich in the coming years.

Jim Rogers soybean opinion

 “You can open a chain of restaurants in the agricultural areas of the world because the farmers are going to be much more successful in the next 30 years than in the last 30 years. “

 Jim Rogers, founder of Quantum Fund.

However, the US Department of Agriculture notes some data that should give traders reasons to be cautious. US farmers have been producing record amounts of corn, soybeans, and wheat in recent harvests. Furthermore, farmers are increasing their allocation of acreage to soybeans at the expense of corn.

How Can I Invest in Soybeans?

Method of InvestingStorage Costs?Security Costs?Expiration Dates?Management Costs?Leverage?Regulated Exchange?
Soybeans FuturesNNYNYY
Soybeans OptionsNNYNYY
Soybeans ETFsNNNYNY
Soybeans SharesNNNNN/AY
Soybeans CFDsNNNNYY

Soybean traders have several ways to invest in the commodity:

Soybean Futures

The Chicago Mercantile Exchange (CME) trades a soybean futures contract. The soybean contract settles into 5,000 bushels, or 136 metric tons, of soybeans.

The CME contract trades globally on the CME Globex electronic trading platform and has expiration months of January, March, May, July, August, September, and November.

Futures are a derivative instrument that allows traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin in order to maintain their positions. At expiration, traders must either accept physical delivery of soybeans or roll their positions forward to the next trading month. Investing in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.

What Are the Different Types of Soybean Futures Contracts?

The CME offers trading on soybeans, soybean meal and soybean oil. Each of these products has unique specifications associated with it. We assembled this comparison of the three futures contracts:

 SoybeansSoybean MealSoybean Oil
Contract Unit5,000 bushels100 short tons6,000 pounds
Price QuoteCents per bushelDollars and cents per short tonCents per pound
Min. Price Fluctuation1/8 of one cent per bushel ($6.25 per contract)10 cents per short ton ($10.00 per contract)1/100 of a cent ($0.0001) per pound ($6.00 per contract)
Listed ContractsMonthly contracts listed for 3 consecutive months and 9 months of January, March, May, July, August, September and November plus next available November.January (F), March (H), May (K), July (N), August (Q), September (U), October (V) & December (Z)January (F), March (H), May (K), July (N), August (Q), September (U), October (V) & December (Z)
Settlement MethodDeliverableDeliverableDeliverable

How Do You Read Soybean Futures Prices?

In order to understand pricing for soybean and other grain futures markets, you should begin by examining the contract information at the Chicago Mercantile Exchange (CME), which operates the leading marketplace for the commodity. The CME posts the specifications for each product traded on its exchange. The relevant pieces of information for each commodity are its symbol, contract size, minimum tick (trading increment), the dollar value of each tick and the contract months.

In the case of soybeans, the contract symbol is ZS and the contract size is 5,000 bushels.  Soybeans and other grains trade in cents per bushel, and the minimum tick (trading increment) is $0.00125 (one-eighth of a cent) per contract. Each tick is equivalent to $6.25, so each one cent move in soybean prices equates to $50 per contract. As for the contract months, the CME assigns a code to each month. In the example below, the product is the July 2018 soybean future (ZS is the symbol for soybeans, N is the symbol for July and the 8 indicates the year 2018).

Soybean Futures

The LAST in the chart above shows the most recent price of soybeans in cents per bushel. The amount after the (‘) mark indicates one-eighths of a cent. Therefore, 1048’6 is read as 1,048 and 6/8 of a cent, or, in other words, $10.48 and ¾ of a cent.

The CHANGE in the chart above shows the change in price for the trading session. Again, the amount after the (‘) mark indicates one-eighths of a cent. Therefore, -4’4 means a decline of 4 and 4/8 cents or 4 and ½ cents.

The GLOBEX VOL shows the number of contracts traded for the session. Traders should pay attention to the sessions where commodities trade as different times of day can lead to variations in the amount of liquidity present.

Soybean Options on Futures

The CME also offers an options contract on the soybean futures contract.

Options are also a derivative instrument that employs leverage to invest in commodities. As with futures, options have an expiration date. However, options also have a strike price, which is the price above which the option finishes in the money.

Options buyers pay a price known as a premium to purchase contracts.An options bet succeeds only if the price of soybean futures rises above the strike price by an amount greater than the premium paid for the contract.Therefore, options traders must be right about the size and timing of the move in soybean futures to profit from their trades.

Soybean ETFs

These financial instruments trade as shares on exchanges in the same way that stocks do. Currently only one ETF –Teucrium Soybean Fund (NYSEARCA: SOYB) – offers a pure play on soybean investing.The fund invests in soybean futures contracts.

Top 3 Soybean ETFs by Assets Under Management

Teucrium Soybean FundPowerShares DB Agriculture Fund*UBS ETRACS CMCI Agriculture Total Return ETN*

* PowerShares DB Agriculture Fund and UBS ETRACS CMCI Agriculture Total Return ETN invest generally in the agricultural sector.

Shares of Soybeans Companies

There are no pure-play public companies engaged exclusively in the production and sale of soybeans. However, there are many large agribusinesses that provide products such as fertilizers, pesticides and seeds to soybean producers:

CompanyCurrent PriceDescriptionExchange
Monsanto
Global agricultural company that provides seeds, genomic and other products to farmers.New York
(NYSE)
The Mosaic Company
Global agricultural company that sells crop nutrients to farmers.New York
(NYSE)
Potash Corporation
Global agricultural company that sells fertilizer and feed products.New York
(NYSE)

Soybean CFDs

One of the ways to invest in soybeans is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of soybeans. The value of a CFD is the difference between the price of soybeans at the time of purchase and the current price.

CFD traders open an account with a regulated broker and deposit funds. The funds serve as margin against the change in the value of the CFD. Many regulated brokers worldwide offer CFDs on soybeans. The advantage of CFDs is that trader can have exposure to soybeans prices without having to purchase shares, ETFs, futures or options.Investing in CFDs does not require the trader to pay for soybean storage or roll futures contracts forward every month. Traders also don’t have to worry about getting the timing and size of markets move correct in order to profit on their trades.

CFDs are still high-risk financial instruments however and your capital is at risk so you should be an experienced trader or seek out a broker that offers a demo account to allow you to develop your knowledge in advance of risking real money.

Which CFD Broker is Best for Trading Soybean?

  • If you’re in the UK, Europe or one of their 30+ other approved countres, we think Plus500 is the best CFD broker.
  • If you’re in India then eToro is the best broker for you.
  • However if you’re in the US, CFDs aren’t allowed so we suggest trading options on futures.

What Information Should Soybean Traders Follow?

The United States Department of Agriculture (USDA) produces its grain stocks report four times each year. This report, which details the capacity of on- and off-farm storage for all grains, is arguably the most important information for soybean traders.

The report contains the following information that market participants watch closely:

  1. Stocks: The report details the year-over-year change in the stocks of soybeans stored in all positions (on-farm as well as off-farm). Larger than expected increases in stocks could put downward pressure on prices, while larger than expected depletions of stocks could cause prices to rise.
  2. Grain Stocks by Position: This chart shows the year-over-year change in stocks broken down by positions (on- or off-farm). The chart looks as follows:
    Soybean Grain Stocks by Position Chart
  3. Soybean Stocks by State: a state by state breakdown of soybean stocks broken down by on- and off-farm positioning

*The report breaks out on-farm and off-farm storage because it uses different survey methods for gathering storage data from farms and off-farm locations. On-farm storage is subject to sampling variability since not all operations holding on-farm stocks are included in the USDA sample. As a result, the report includes a sampling error percentage.

The bottom line, however, is that this quarterly report often plays a crucial role in moving soybean markets.

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