Soybean oil is a vegetable oil extracted from the seeds of soybeans. It is perhaps the most widely consumed cooking oil, but it is also common in paints, printing inks, and insect repellants. Ancient Chinese records suggest that soybeans were extensively used for edible soy oil production as early as 2000 BC.

Soybean oil futures contracts are perfect for traders or hedgers who want quick and cheap access to the soybean oil market. One futures contract is equivalent to around 60,000 pounds of soybean oil, and expires on the 15th day in the months of January, March, May, July, August, September, October, and December.

With the global production of about 57 million tons in 2018 alone, soybean oil makes up about half of the edible vegetable oils and 30 percent of all fats and oils produced in the world. So, it is an important commodity in the global market, and soybean oil futures contracts are traded on commodity exchanges.

Soybean Oil Futures Contract Specifications
Symbol
BO
Exchange
CME
Tick Size
$6.00
Point Value
$600
Contract Size
60,000 pounds, which is around 27 metric tons
Contract Months
January (F), March (H), May (K), July (N), August (Q), September (U), October (V) & December (Z)
Trading Hours
Sunday – Friday 7:00 p.m. – 7:45 a.m. CT and Monday – Friday 8:30 a.m. – 1:20 p.m. CT
Settlement
Physical Delivery
Last Trading Day
The business day before the 15th calendar day of the contract month.

 

Uses of Soybean Oil

Soybean oil futures are popular among the agricultural commodity futures because soybean oil can be used in a wide range of products. The most common uses are as follows:

Cooking oil: After extraction, soybean oil can be refined into cooking oil, which is used in making various dishes. The oil is very good for frying and baking — bread, cakes, pies, crackers, French fries, chips, and cookies contain soybean oil.

Food products: Soybean oil is an ingredient in making several oil-containing food products such as margarine, shortenings, salad dressings, and mayonnaise.

Drying oil: When it is exposed to air, soybean oil slowly hardens and forms a flexible, waterproof, and transparent solid. This drying oil property of soybean oil makes it useful in making printing ink (soy ink) and oil paints.

Fixative: Although soybean oil has no insect repellent effects, it is often used as a fixative in many insect repellents to extend the duration of action of the essential oils, like geranium oil, in such products.

Biodiesel: Soybean oil is also used in the production of biofuels.

The Largest Producers and Consumers of Soybean Oil

According to the United States Department of Agriculture, China is the largest producer of soybean oil, with an annual production of about 15.2 million tons. Other leading producers include the United States (11.1 Million tons), Argentina (8.7 million tons), Brazil (8.4 million tons), the EU (3.0 million tons), India (1.7 million tons), Mexico (1.1 million tons), Russia (0.91 million tons), Paraguay (0.75 million tons), Egypt (0.62 million tons), and Japan (0.47 million tons).

The top consumers of soybean oil are China, the US, Brazil, India, Argentina, the EU-27, Bangladesh, Mexico, Egypt, Algeria, and Pakistan. Both producers and consumers trade soybean oil futures contracts.

Why Trade Soybean Oil Futures Contracts?

Trading Soybean Oil Futures

Trading Soybean Oil Futures

The reasons for trading the soybean oil futures market can differ for each individual. Some trade soybean oil futures contracts to profit from price changes, but others are in the market to hedge against inflation or diversify their portfolio. The stakeholders in the vegetable oil industry come to the market to ensure a stable supply of the commodity at a fair rate.

Speculation: Many traders are in the soybean oil futures market to speculate on soybean oil prices. These speculators only try to benefit from the fluctuations in soybean oil prices, so their trades are mostly for short durations.

Portfolio diversification: Many investors and fund managers use the commodity market to spread their investments across many asset classes in order to protect their portfolio from systemic risk. Soybean oil futures is a popular instrument for investors who love agricultural commodities.

Inflation hedge: Fiat money, like the U.S. dollar, is steadily losing its purchasing power because of interest rate reduction. Trading soybean oil futures contracts can serve as an effective way to hedge against inflation since prices increase with rising inflation.

Hedge against price fluctuations:  Soybean oil producers come to the soybean oil futures market to secure a fair price for their products, while major distributors, bakers, and other major users of the commodity come to the market to ensure an adequate supply of soybean oil.

Soybean Oil Futures Trading Strategies

Soybean Oil Futures Trading Strategy

Soybean Oil Futures Trading Strategy

While the soybean oil market isn’t the easiest market to find a trading strategy on, it certainly is possible. However, in general, the soybean futures market is somewhat easier, and we have more trading strategies on that market than on the soybean oil market.

If you’re interested in getting edges to use as foundation for your own trading strategies, we recommend that you have a look at our edge membership! Members get a new edge sent right to their inbox every month! 

How to Trade Soybean Oil Futures

Although you may be able to trade soybean oil options and CFDs, the best way to play the soybean oil market is by trading soybean oil futures contracts. Chicago Board of Trade (CBOT), which is a member of the Chicago Mercantile Exchange (CME) Group, offers the contract, and it can be traded from any part of the world via the CME Globex electronic trading platform.

A soybean oil futures contract is equivalent to 60,000 pounds (about 91 metric tons) of soybean oil, and the price quotation is in cents per pound. It normally expires on the 15th day in the months of January, March, May, July, August, September, October, and December. At expiration, the contract is settled by physical delivery. A trader who wishes to prevent taking or making a delivery of the commodity can rollover the expiring contract to the next expiration month.

All you need to start trading soybean oil futures is to create an account with the exchange through your futures broker and deposit the required margin. Futures contracts are leveraged instruments, so you need not have the full dollar worth of a contract before you can trade it. But note that while the leverage can help you make more money, it can also make you lose more.

Apart from the CME Group, soybean oil futures contract is offered on the Dalian Commodity Exchange in China — a major hub for the commodity in East Asia.

Factors That Affect Soybean Oil Futures

There are several factors that can affect the price of soybean oil futures contract, and here are some of them:

Soybean prices: Since soybean oil is extracted from soybeans, the price of soybeans will affect soybean oil prices.

Alternative cooking oils: The availability of other vegetable oils, such as castor oil, corn oil, palm oil, and others, does affect the price of soybean oil.

U.S. Soybean exports: When the soybean export data is increasing, soybean oil prices tend to increase since there won’t be enough for oil production.

China’s soybean oil demand: An increase in China’s demand for soybean oil will cause an increase in the price of soybean oil.

Soybean Oil Seasonality

Here is a seasonal chart of the soybean oil futures market.

Soybean Oil Seasonality

Soybean Oil Seasonality

Conclusion

Soybean oil is a vegetable oil extracted from the seeds of soybeans. It is widely used as cooking oil, drying oil, fixative, and an ingredient in biodiesels. Soybean oil futures contracts can be traded on the CBOT and the Dalian Commodity Exchange.

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