Soybeans are very nutritious species of legume grown for their edible bean. The plant is native to East Asia, and there is evidence that it was domesticated in China as early as 1100 BC. But over the years, soybean production has spread to other parts of the world. Over 12 billion bushels were produced in 2017/18.

Soybeans futures contracts are one of the most-traded soft commodities in the world. They trade on the CME and are perfect for traders or hedgers that seek exposure to the soybean market. 

 Since the 1920s, two important commodities are produced from soybeans — soybean oil and soybean meal. Both the whole soybeans and its two main products are traded on the commodity exchanges.

Soybean Futures Contract Specifications
Symbol
S
Exchange
CME
Tick Size
$6.25
Point Value- Size
$50
Contract Size
5,000 bushels
Contract Months
January, March, May, July, August, September and November
Trading Hours (CME Globex)
Sunday – Friday, 7:00 p.m. – 7:45 a.m. CT and Monday – Friday, 8:30 a.m. – 1:20 p.m. CT
Trading Hours (Open Outcry)
Monday – Friday, 8:30 a.m. – 1:15 p.m. CT with Post session until 1:20 p.m. CT
Settlement
Deliverable
Grade
#2 Yellow at contract price, #1 Yellow at a 6 cent/bushel premium, #3 Yellow at a 6 cent/bushel discount
First Notice Day
Last Trading Day
The business day prior to the 15th calendar day of the contract month.
Last Notice Day
Position Limit

Source

Uses of Soybeans

Soybeans futures contracts are widely traded because the commodity can be used in so many ways. Here are some of the uses of soybeans:

Soybean oil: Most of the soybeans produced in the world are processed to extract soybean oil. The oil is either refined to make cooking oil or used to make food products, like margarine, shortening, mayonnaise, salad dressings, cakes, cookies, pies, and crackers. It is also used in producing biodiesels.

Soybean food products: Soybeans can be eaten whole or processed to get other products. Both soybeans and soybean products are commonly seen in Asian diets, especially Japan, China, and Korea. For instance, the whole bean is prepared with salt and served as an appetizer in Japan. The beans can be processed in various ways to get tofu, tempeh, soy milk, soy sauce, soy flour, soy lecithin, soybean meat, and textured vegetable protein (TVP), which are very important protein sources for vegans.

Soy-based infant formula (SBIF): This is usually prepared for infants who are allergic to pasteurized cow milk. It is also used for infants on a vegan diet.

Soybean meal: The part of the soybean that is left after the extraction of soybean oil is known as soybean meal. It is mostly used to make livestock feed due to its high protein content.

The Largest Producers and Consumers of Soybeans

Soybean Futures

Soybean Futures

Although soybean is native to the Asian region, the Americas now dominate the soybeans market. According to the U.S. Department of Agriculture (USDA), the United States tops the list of soybeans producers and exporters, accounting for about 35 percent of the global production and over 44 percent of the exports. Other top producers include Brazil, Argentina, China, India, Paraguay, Canada, Mexico, and the EU.

The largest consumers of soybeans include China, the US, Brazil, India, Argentina, the EU-27, Bangladesh, Mexico Egypt, and Algeria. China imports the most soybeans, and it is followed by the European Union, Mexico, Japan, and Taiwan. The trades are carried out via futures contracts.

Why Trade Soybeans Futures Contracts

Trading soybeans futures contracts can be a profitable venture if you know why you are trading it and how to play the soybeans market. Traders and investors have different reasons for trading soybeans futures, but here are the common ones:

Diversifying your portfolio: Experienced investors know that investing only in one financial market, such as the bond market or the stock market can be very dangerous, even when invested in multiple securities in that market. Certain factors can cause an entire market to crash — systemic risk. So, it is important to diversify your portfolio to other asset classes, such as commodities, and soybean is a great place to start from.

Speculating on soybean demand growth: As the economy of the emerging market countries continues to grow, the demand for soybeans is likely to increase since there will be more need for livestock feed and vegetable oils. Also, the need for renewable energy can push up the demand for the commodity, adding more liquidity to the market.

Hedging against inflation: Soybeans, like other commodities, have tangible value and the price will increase when there is rising inflation. So, one can use the commodity to hedge against inflation, especially if the U.S. Federal Reserve keeps lowering interest rates

Soybean Trading Strategies

Soybean Trading Strategy

Soybean Trading Strategy

The soybean futures market is one of the most popular markets with futures traders, and finding a trading strategy on the market isn’t too hard.

Many of our own trading strategies trade the soybean futures market, and it blends in beautifully with the other markets we trade.

If you’re interested in trading strategies for the soybean futures market, we recommend that you have a look at our edge membership where you get edges for different markets, including the soybean futures market!

How to Play the Soybeans Market

 

The best way to play the soybeans market is by trading the soybean futures contract. The contract is traded on:

  • Brazilian Mercantile and Futures Exchange (BM&F),
  • Tokyo Grain Exchange (TGE)
  • Mercado a Termino de Buenos Aires (MATba)Kansai Commodities Exchange (KANEX) 
  • Dalian Commodity Exchange (DCE), National Commodity and Derivatives Exchange (NCDEX),
  • and of course, the Chicago Mercantile Exchange (CME)

On the CME, a soybean futures contract is equivalent to 5,000 bushels (136 metric tons) of soybeans, and it normally expires in the months of January, March, May, July, August, September, and November. Settlement, at expiration, is by physical delivery of the commodity. A trader who doesn’t want to deal with the physical asset can roll over his position to the next contract month.

The soybean futures contract can be traded electronically via the CME Globex electronic trading platform. Aside from trading the futures contract, other ways of playing the soybean market include soybean options, soybean ETFs, and soybean CFDs, and here is how they compare.

Comparing soybean futures contracts with other methods of trading soybeans

Basis Cotton Futures Cotton Options Cotton ETFs Cotton CFDs
What it is
Agreement to exchange the asset at expiration
A right to buy or sell the asset on or before the expiration
Instruments that tracks the price of cotton but trades like stocks
Contract to exchange the difference in the price of the asset, from the time the trade is entered to the time it is closed
Where it trades
Commodity futures exchanges
Commodity exchanges
Stock exchanges
Online CFD brokers
Availability of leverage
Yes
Yes
Only with a margins brokerage account
Yes
Extra management cost
No
No
Yes
No
Expiration
Yes
Yes
No
No

Factors That Affect Soybeans Prices

Soybean Futures Price Factors

Soybean Futures Price Factors

There are many factors that can influence soybeans prices, and they include the following:

Weather Condition: The US and Brazil account for about 70 percent of soybeans export, so adverse weather situations in those countries can affect soybeans prices.

Key reports: Certain market reports significantly move soybeans prices, and they include:

  • the USDA World Agricultural Supply and Demand Estimate (WASDE) Report, which forecasts the demand and supply from various regions
  • the USDA Prospective Planting Report, which indicate the crop farmers prefer to plant
  • Grain Stocks Reports, which offers updates on stocks of soybeans
  • Crop Production Reports

Ethanol subsidies: Sometimes, the U.S. government subsidizes corn farming to boost ethanol production. When the subsidies end, farmers tend to devote more acres to soybeans, thereby increasing supply and pushing down prices.

Soybeans Seasonality

Below you see a chart over the seasonal patterns in the soybeans market.

Soybeans Futures (S) Seasonal Chart

source

Conclusion

Soybean is an edible legume used for extracting vegetable oil, producing protein-rich diets for vegans, and making livestock feed. The best way to trade soybeans is via the futures market, and soybean futures contracts trade on many commodity exchanges around the world.

You can find more info about futures market here.

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