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Soybean Oil Futures Trading Strategies | Seasonality and Contract Specifications Overview

Last Updated on 10 February, 2024 by Rejaul Karim

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 market 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

Soybean Oil Futures are contracts that represent a commitment to purchase or sell a set amount of soybean oil at a specified price on a future date. These futures contracts are traded on various exchanges including the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE).

Below is a list of key specifications for Soybean Oil Futures contracts:

  • Contract Size: The contract size for Soybean Oil Futures is 60,000 pounds (about 27 metric tons).
  • Trading Units: Contracts are traded in multiples of the contract size, with the minimum trading unit being one contract.
  • Trading Months: Futures contracts for Soybean Oil are available for trading in January, March, May, July, August, September, October, and December.
  • Pricing Unit: The pricing unit for Soybean Oil Futures is cents per pound.
  • Tick Size: The minimum price change (also known as a “tick”) for Soybean Oil Futures is 0.01 cents per pound, or $6.00 per contract.
  • Daily Price Limits: The CME and ICE have established daily price limits for Soybean Oil Futures, which limit the amount by which the price of the contract can change within a single trading day.
  • Last Trading Day: The last day of trading for Soybean Oil Futures is usually the third business day prior to the first day of the delivery month.
  • Delivery Month: Futures contracts for Soybean Oil are cash settled, which means that no physical delivery of soybean oil takes place. The futures contracts expire on the third business day prior to the first day of the delivery month.
  • Delivery Points: The delivery points for Soybean Oil Futures are specified by the exchange on which the contract is traded, and are usually located at major soybean oil processing plants in the United States.
  • Margins: To trade Soybean Oil Futures, traders must post margins, which are performance bonds that ensure that the trader can cover any losses incurred during the life of the contract.
  • Delivery Procedures: The delivery procedures for Soybean Oil Futures are established by the exchange on which the contract is traded, and include procedures for the delivery of soybean oil, the assignment of delivery points, and the determination of delivery grades.

In conclusion, Soybean Oil Futures are a flexible and convenient tool for managing price risk in the soybean oil market. By allowing traders to lock in a price for soybean oil at a future date, these contracts help to mitigate price risk and provide a means of hedging against price fluctuations.

Soybean Oil Futures Trading Strategies

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.

Trading Strategies

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Soybean oil futures trading strategies involve understanding the fundamentals of the market, conducting technical analysis, and utilizing risk management techniques.

Fundamentals: By understanding the supply and demand dynamics and the global market for soybean oil, traders can better assess price movements in the futures market.

Technical Analysis: Traders can also use technical analysis to identify potential trading opportunities. Technical analysis involves analyzing the historical price action of the futures contract in order to identify potential support and resistance levels, chart patterns, and other indicators.

Risk Management: Risk management is an important aspect of any trading strategy. Traders should use risk management techniques such as stop orders and limit orders to limit their risk exposure and protect their capital.

Overall, soybean oil futures traders should have a comprehensive trading strategy that involves a combination of fundamental and technical analysis as well as risk management. By following these strategies, traders can better capitalize on price movements in the market and manage their risk effectively.

Soybean Oil Seasonality

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

Soybean Oil Seasonality
Soybean Oil Seasonality

Soybean oil futures seasonality is an important factor to consider when trading this agricultural commodity. Soybean oil is an edible oil that is used in a variety of products, including cooking oil, margarine, and biodiesel. The price of soybean oil is subject to a number of different factors, including supply and demand, weather conditions, and global economic conditions. Seasonality is also a major factor in determining the price of soybean oil.

January

January is a month of seasonal demand for soybean oil, as this is a time when food manufacturers and restaurants typically increase their demand for the commodity. This is due to the increased demand for food products and cooking oils during the winter holiday season. Additionally, the cold winter temperatures can affect the supply of soybean oil, as it can be difficult to harvest the beans during this time of year.

February

In February, the demand for soybean oil typically begins to decline as the winter holiday season ends. However, the demand for soybean oil can be further influenced by the Chinese New Year in late January or early February. During this period, demand for soybean oil can increase as food manufacturers and restaurants prepare for the holiday.

March

In March, the demand for soybean oil begins to rise again as food manufacturers and restaurants start to prepare for the upcoming summer season. Additionally, the weather conditions in the U.S. can play a role in soybean oil prices, as this is a time of year when the Midwest and Northern states can experience more rainfall and higher temperatures, which can affect the availability of soybean oil.

April

April is typically a time of increasing demand for soybean oil, as food manufacturers and restaurants begin to produce more products for the summer season. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience higher temperatures and more rainfall, which can affect the supply of soybean oil.

May

In May, the demand for soybean oil typically decreases as the summer season begins. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience more rainfall and higher temperatures, which can affect the supply of soybean oil.

June

June is typically a time of low demand for soybean oil, as food manufacturers and restaurants typically reduce their demand for the commodity at this time of year. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience higher temperatures and more rainfall, which can affect the supply of soybean oil.

July

In July, the demand for soybean oil usually begins to increase as food manufacturers and restaurants start to prepare for the upcoming fall season. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience more rainfall and higher temperatures, which can affect the supply of soybean oil.

August

August is typically a time of increasing demand for soybean oil, as food manufacturers and restaurants begin to produce more products for the fall season. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience higher temperatures and more rainfall, which can affect the supply of soybean oil.

September

In September, the demand for soybean oil typically begins to decline as the fall season ends. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience more rainfall and higher temperatures, which can affect the supply of soybean oil.

October

In October, the demand for soybean oil usually begins to increase again as food manufacturers and restaurants begin to produce more products for the winter season. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience higher temperatures and more rainfall, which can affect the supply of soybean oil.

November

November is typically a time of increasing demand for soybean oil, as food manufacturers and restaurants begin to prepare for the winter holiday season. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience more rainfall and higher temperatures, which can affect the supply of soybean oil.

December

In December, the demand for soybean oil usually peaks as food manufacturers and restaurants prepare for the winter holiday season. Additionally, the weather conditions in the U.S. can play a role in the availability of soybean oil, as this is a time of year when the Midwest and Northern states can experience higher temperatures and more rainfall, which can affect the supply of soybean oil.

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.

The Commitment of Traders and Soybean Oil

The Commitment of Traders (COT) report is a weekly report published by the Commodity Futures Trading Commission (CFTC) that provides an analysis of the open interest in various futures and options markets. The COT report is used by traders, investors, and market analysts to gauge the sentiment of the market and to evaluate potential trading opportunities.

Soybean Oil Futures are futures contracts that provide investors with a way to hedge, or protect, their exposure to the price of soybean oil, a vegetable oil derived from soybeans. The COT report is a valuable tool for traders who are looking to gain insights into the sentiment of the soybean oil futures market.

The COT report is divided into two sections: the first section breaks down the number of futures contracts held by commercial traders and non-commercial traders. Commercial traders are typically hedgers or large institutional investors who are using the futures market to protect their exposures to soybean oil. Non-commercial traders are typically speculators who are looking to profit from price movements in the soybean oil futures markets.

The second section of the COT report provides a breakdown of the net positions held by large traders. This section provides a snapshot of the sentiment of the market, as large traders are typically viewed as some of the more sophisticated market participants.

Overall, the COT report is a useful tool for traders looking to gain insights into the soybean oil futures market. By taking into account the positions held by commercial and non-commercial traders, as well as the net positions held by large traders, traders can gain a better understanding of the sentiment of the soybean oil market and make more informed trading decisions.

What important report days are there for Soybean Oil Futures?

Soybean Oil Futures have three important report days each month: the 10th, 15th, and 25th. On the 10th of each month, the USDA releases its monthly World Agricultural Supply and Demand Estimates (WASDE) report. This report provides a comprehensive overview of the current and near-term supply and demand balance for the global soybean oil market.

On the 15th of each month, the USDA updates its Crop Production report. This report provides a detailed assessment of the current crop production, including estimates of yields, area planted, and harvested acreage.

Finally, on the 25th of each month, the National Agricultural Statistics Service (NASS) releases its monthly Cold Storage report. This report contains data on the total amount of soybean oil stored in cold storage facilities. This data is used to gauge the current and near-term supply and demand balance of the soybean oil market.

Overall, the 10th, 15th, and 25th of each month are important report days for Soybean Oil Futures. These reports provide traders with critical insights into the current and near-term supply and demand balance of the market, which can help them make more informed trading decisions.

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.

Trading Strategies

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.

Here is our archive with articles about other tradeable futures markets.

FAQ

What Are Soybean Oil Futures?

Soybean Oil Futures are contracts representing a commitment to buy or sell a set amount of soybean oil at a specified price on a future date, traded on exchanges like CME and ICE.

What are the Key Specifications of Soybean Oil Futures Contracts?

Contract size is 60,000 pounds, trading units are multiples of the contract size, and pricing unit is cents per pound. Tick size is 0.01 cents per pound.

How Do Soybean Oil Futures Contracts Work?

These contracts allow traders to lock in a price for soybean oil at a future date, providing a flexible tool for managing price risk in the soybean oil market.

Who Are the Largest Producers and Consumers of Soybean Oil?

China is the largest producer, and top consumers include China, the US, Brazil, India, Argentina, the EU-27, Bangladesh, Mexico, Egypt, Algeria, and Pakistan.

What Factors Affect Soybean Oil Futures Prices?

Factors include soybean prices, alternative cooking oils’ availability, US soybean exports, and China’s soybean oil demand.

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