Risk Warning: Your Capital is at Risk.
In this guide to trading soybeans, we’ll explain how and where you can trade this popular commodity with a list of regulated brokers that are available in your country. We also discuss why some traders choose to trade soybeans and what experts say about trading them.
In a hurry? If you want to get started trading soybeans today, here are regulated brokers available in to consider:
Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.
Contents
How Can I Trade in Soybeans?
Soybean traders have several ways to trade in the commodity including futures, options, ETFs, shares of soybean companies, and CFDs.
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 allow traders to 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.
Trading 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:
| Soybeans | Soybean Meal | Soybean Oil | |
|---|---|---|---|
| Contract Unit | 5,000 bushels | 100 short tons | 6,000 pounds |
| Price Quote | Cents per bushel | Dollars and cents per short ton | Cents per pound |
| Min. Price Fluctuation | 1/8 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 Contracts | Monthly 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 Method | Deliverable | Deliverable | Deliverable |
How Do You Read Soybean Futures Prices?
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.
Reading Month Codes
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 above, 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).
How to Read the CME Snapshot
- “LAST” in the chart at right 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.
- “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.
- “GLOBEX VOL” shows the number of contracts traded for the session. Traders should pay attention to the sessions where commodities trade because different times of the 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 trade 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 offers a pure play on soybean trading: ETF -Teucrium Soybean Fund (NYSEARCA: SOYB), shown below. The fund invests in soybean futures contracts.
Other agricultural ETFs which own one or more soybean stocks include TAGS, FTXG, VEGI & MOO.
Shares of Soybean Companies
There are no pure-play public companies engaged exclusively in the production and sale of soybeans. However, for those looking for soybean stocks, there are many large agribusinesses that provide products such as fertilizers, pesticides and seeds to soybean producers such as CTVA, MON, POT & MOS.
| Company | Current Price | Description | Exchange |
|---|---|---|---|
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 Contracts for Difference (CFDs)
One of the ways to trade 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 a margin against the change in the value of the CFD. Many regulated brokers worldwide offer CFDs on soybeans.
The advantage of CFDs is that a trader can have exposure to soybean prices without having to purchase shares, ETFs, futures, or options.
Trading 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.
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
Where Can I Trade Soybeans?
If you are interested in trading commodities like soybeans, start your research with reviews of these regulated brokers available in that offer stocks, ETFs or other ways of speculating on the price of soybeans.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Reasons to Trade in Soybeans
Traders purchase agricultural commodities such as soybeans for a variety of reasons, but the following are most common:
- Inflation and weak US dollar hedge
- Bet on demand growth
- Portfolio diversification
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Can Soybeans Serve as a Hedge on Inflation and Weak US Dollar?
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.
Will the Demand for Soybeans Rise?
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. And 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 Trade in Soybeans?
There are two specific trends that could boost soybean prices in the years ahead: emerging market demand and climate change.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
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.
Soybeans may be an alternative to replace costly foods in countries experiencing food scarcity. For example, these statistics of food shortages in the US may be useful for insight into the future of cost-effective food in first-world countries.
How Will Climate Change Affect Soybean Production?
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 ahead. Trading in agricultural commodities is a way to benefit from this trend.
Risks of Trading in Soybeans
Traders should also consider the risks of trading in soybeans:
- A strong US dollar could drive prices lower.
- Overproduction by large suppliers could depress prices. This scenario could unfold, for example, if the United States ends corn subsidies.
- More bad news on the health front could weaken consumer demand for soy products.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
What Do Experts Think About Soybeans?
Experts see both potential risks and rewards from trading 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 traders will benefit in the coming years.
“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.
FAQs
Below we answer some common questions about trading soybeans.
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:
- 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.
- Grain Stocks by Position: This chart shows the year-over-year change in stocks broken down by positions (on- or off-farm).
- 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.
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 price 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: crush spread, reverse crush spread, and grain spreads.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
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.
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).
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.
Further Reading
Also see our guides on stock, CFD, and commodity brokers to find out which online trading brokerages are available in .
