Soybeans

Trading soybeans is a way to speculate on rising demand, hedge against inflation and a declining US Dollar, and diversify investment portfolios. Soybeans are used in a range of industries including food, biofuels and plastics. This tutorial unpacks the basics of soybean trading, from the top brokers to the factors that influence price forecasts.

How Soybean Trading Works

Soybean trading is the buying and selling of soybeans, either directly or by speculating on their price through derivatives.

Trading soybeans can be done through futures, options, ETFs, and CFDs:

• Futures contracts are agreements to buy or sell soybeans at a set price and date in the future
• Options provide the right to buy or sell the commodity at a specified price but without the obligation to do so
• ETFs are baskets of soybean futures contracts traded on exchanges like stocks
• CFDs allow traders to speculate on rising or falling prices without taking ownership of the commodity. CFDs, in particular, are available at many of the top online brokers

Soybean Basics

There are three main types of soybean products: soybeans, soybean oil and soybean meal. As well as human consumption, soybeans are used to make animal feed, plus cooking oil.

Trading prices are influenced by a range of factors including weather conditions, dietary trends, supply and demand in the US and emerging markets, government subsidies, trade agreements, alternative oils, and the US Dollar.

The United States, Brazil, Argentina, and Paraguay are the largest exporters of soybeans, accounting for more than 80% of production. China is the world’s largest importer of soybeans, responsible for more than 60% of global demand.

History

Soybean trading has a long history, dating back to the domestication of soybeans in ancient China more than 3,000 years ago. However, soybean trading as we know it today began in the mid-19th century, with the first soybean crop being planted in the United States in 1851.

Soybeans were initially used for animal feed and fertiliser, but their uses expanded to include food products such as soy milk, tofu, and soy sauce. This led to increased demand for soybeans and the development of soybean trading as a global commodity.

In the early 20th century, the Chicago Board of Trade (CBOT) began trading soybean futures contracts, allowing producers and buyers to lock in quotes for future delivery. This helped to stabilise the market and promoted trading.

Today, soybeans are a major industry, with billions of dollars in annual trade volume. The development of new technologies, such as electronic trading platforms and data analytics tools, has also transformed the way soybean trading is conducted at many retail brokers; it is faster and more efficient.

Price Chart

Factors That Influence Soybean Prices

• US supply: As the largest exporter of soybeans, subsidies, political instability and other factors that affect the local market can have ramifications for commodity prices globally.
• Demand in emerging markets: China is the biggest importer of soybeans and as its economy rises, so too will demand for soybeans, potentially driving up prices. The same is true in other regions, including Africa. In addition, the growing global population and increasing interest in plant-based diets could lead to further rises in demand.
• Weather conditions: Weather events like droughts or flooding in soybean-producing countries such as Brazil, the US, or Argentina can impact global soybean prices. For instance, in 2020, the drought in Brazil caused soybean prices to rise from $873.5 to $1372.5 between August and November. This had a direct impact on UK manufacturers that use soybean meal in animal feed production.
• Oil competition: The oils generated from soybean meal face pressure from rapeseed, linseed, and castor, among others. If these alternatives take some of the market share traditionally enjoyed by soybeans, this could have a negative impact on prices.
• Currency exchange rates: Commodity prices, including soybeans, are generally quoted in US dollars. Producers bank fewer dollars when the world’s reserve currency rises and vice versa. Investors can use soybeans to hedge against a weak US dollar and rising inflation.
• Seasonality: The soybean market is largely driven by seasonal patterns, with prices often rising in the summer months due to increased demand for livestock feed.

How To Trade Soybeans

• Contract For Difference (CFDs): CFDs allow you to speculate on the price movements of soybeans without taking delivery of truckloads of soybeans. Traders can go long or short and use leverage to boost their position sizes and potential returns. Soybean CFDs are offered by many top brokers in the UK, including CMC Markets.
• Futures: These allow traders to buy or sell soybeans at a predetermined price and date in the future. This enables investors to hedge against price fluctuations or to speculate on the future direction of soybean prices. FxPro, for example, offers soybean futures at 12.5 USD per 50 bushels.
• Options: Soybean options contracts are similar to futures, but they give investors the right but not the obligation to buy or sell soybeans at a predetermined price and date. This can be useful for those who want to limit their risk exposure.
• Exchange-traded funds (ETFs): ETFs that track soybeans are also available. These typically hold soybean futures contracts and aim to replicate the price movements of commodities. Traders can buy and sell ETFs like stocks, making them a convenient way to invest in the commodity. One of the most popular soybean ETFs is the Teucrium Soybean Fund (SOYB) which is available at several leading brokers, including IG Index.
• Stocks: There aren’t many publicly-traded companies that solely deal in the production and distribution of soybeans. However, there are companies with indirect exposure to the soybean market, including those that sell seeds to large producers. As a result, popular soybean stocks include the Potash Corporation and the Mosaic Company (both listed on NYSE).

Comparing Soybean Brokers

Market Access

Check that the broker offers access to relevant exchanges, such as the Chicago Board of Trade (CBOT).

CMC Markets, for example, offers flexible soybean instruments, including CFDs with shorting.

Spreads & Fees

Compare any fees, such as spreads, commissions and funding charges. Soybean brokers may also have overnight charges and swap rates for derivatives.

Pepperstone offers soybean trading with a minimum spread of 1.4 and a contract size of 1 bushel per lot.

Margin Requirements

Margin is the amount of capital that traders need to hold in their accounts to open and maintain leveraged trading positions. Brokers may have different margin requirements, depending on regulatory requirements.

Forex.com for example, has a margin requirement of 1:10, or 10%, for soybean trading.

Regulatory Compliance

Make sure that the broker is regulated by a reputable authority, such as the Financial Conduct Authority (FCA). This ensures that UK brokers adhere to strict standards of conduct and have sufficient financial safeguards in place to protect clients.

Top FCA-regulated brokers that facilitate soybean trading include XTB.

Trading Platform

The best soybean brokers will offer a user-friendly platform that provides real-time data, fast order execution and comprehensive charts to track the performance of the agricultural commodity.

The platform should also be available on multiple devices, such as desktops, tablets, and mobile phones. Some of the most used platforms include MetaTrader 4 and cTrader, although many brokers such as eToro offer proprietary platforms which are popular among commodity traders.

Customer Support

The best brokers for trading soybeans will provide excellent customer support, including responsive email and phone services, and live chat.

Also look for educational resources such as webinars, agriculture reports, price news, and trading guides.

Soybean Trading Strategies

Crush Spread

Spread trading is a popular strategy in the grain and oilseed markets and involves simultaneously buying and selling different soybean futures contracts.

In the soybean market, the most common spread trade is the crush spread. Soybean crushing is the process of crushing soybeans to extract their oil – the crush spread is the difference in value between the two.

Thus, traders can take advantage of the potential profit margin between the two markets:

• Selling the crush is commonly used by hedgers, and involves selling soybean oil and soybean meal, and buying soybeans.
• Buying the crush involves buying soybean meal and soybean oil, and selling soybeans.

Corn Spread

Soybeans are heavily impacted by the supply and demand of other crops such as corn, as farmers often produce both depending on the price of each.

The soybean and corn spread strategy involves gauging the ratio of corn to soybean, to determine if the soybean price would be overvalued or underpriced.

A high soybean-corn ratio above 3 signals that farmers are profiting 3x more for each soybean bushel than corn. This indicates that the soybean price could be about to drop and traders can take advantage of this discrepancy by selling soybean futures.

You can find a soybean-corn ratio chart on TradingView.

Soybean Trading Hours

Soybean trading hours vary depending on the exchange where the contracts are traded.

The two major exchanges are the Chicago Mercantile Exchange (CME) and the Minneapolis Grain Exchange (MGEX).

CME:

• Sunday to Friday, 7:00 pm – 7:45 am CT
• Monday to Friday, 8:30 am – 1:20 pm CT

MGEX:

• Sunday – Friday from 7:00 pm to 1:45 am CT

Bottom Line On Soybean Trading

Trading soybeans provides an opportunity to bet on rising or falling demand, hedge against inflation and the US dollar, plus build a diverse investment portfolio. Traders can speculate on the agricultural commodity through several vehicles, including futures, options, CFDs, ETFs, plus stocks in related companies. Importantly, the best soybean brokers will be regulated by the FCA in the UK.

FAQ

Article Sources

Major Factors Affecting Global Soybean and Products Trade Projections

Understanding Soybean Crush

Soybeans – What Are They?