Soybean Futures:
Soybean Trading Basics
Understand the three major soybean markets, what drives soybean prices, the different ways to trade soybeans and the popular spread strategies used by commodity traders.
Three markets. One global commodity complex.
There are three main soybean products available to trade on the commodities market: soybeans, soybean oil and soybean meal.
Each product has different uses, which means their prices can move in different ways. Soybean meal is largely used in animal feed, while whole soybeans are used in products such as tofu, soy milk, soy sauce and miso.
Soybean oil is a vegetable oil used primarily in food products and cooking. With emerging market economies continuing to develop, demand for soybean products may continue to grow for both human consumption and animal feed.
Gain exposure to soybeans, soybean oil and soybean meal through financial markets without taking ownership of the physical commodities.
Three soybean products to understand
The soybean market is made up of three closely connected products, each with its own supply and demand dynamics.
Whole soybeans
Soybeans are used for human consumption in products such as tofu, soy milk, soy sauce and miso paste.
Soybean meal
Soybean meal is primarily used as a protein-rich ingredient in animal feed, making demand closely linked to livestock production.
Soybean oil
Soybean oil is a widely used vegetable oil found in food products and cooking applications. It also competes with other vegetable oils in the global market.
Soybeans and corn
The prices of soybeans have historically been closely linked to other crops, particularly corn.
Because corn and soybeans grow in similar conditions, farmers may decide at the beginning of a growing season which crop to plant based on expected prices, demand and government subsidies.
Growing emerging market demand
Developing economies may require increasing quantities of soybean products to meet the needs of growing populations and expanding agricultural industries.
If demand increases while supply remains relatively unchanged, soybean prices may come under upward pressure.
What moves the price of soybeans?
Like most commodities, soybean prices are primarily affected by the balance between supply and demand.
US production
The United States is one of the world's largest producers and exporters of soybeans.
Adverse weather conditions, including droughts and hurricanes in major producing regions, can affect crop yields and reduce the amount of soybeans available to the global market.
Strength of the US dollar
Soybeans are quoted in US dollars. Changes in the value of the dollar can therefore influence the international price of soybean products.
A stronger dollar can affect the purchasing power of international buyers, while a weaker dollar can influence the returns received by producers.
Emerging market demand
Countries with growing populations and expanding economies may increasingly import soybean products for food, animal feed and agricultural use.
Rising demand can potentially place upward pressure on prices if production does not increase at the same pace.
Alternative oils
Soybean oil competes with other vegetable oils, including rapeseed, linseed and cottonseed oil.
Changes in demand for alternative oils can therefore influence the demand and price of soybean oil.
Ethanol subsidies
Government subsidies can influence agricultural decisions.
Changes to incentives supporting corn-based ethanol production could potentially affect how farmers allocate land between corn and soybeans, influencing future supply.
Supply and demand
Ultimately, soybean prices are driven by the relationship between the amount of product available and the level of global demand.
Ways to trade soybeans
Traders can gain exposure to soybean markets through several financial instruments, each with different characteristics.
Futures contracts
Futures contracts allow traders to agree to the delivery of a specific amount of soybeans, soybean oil or soybean meal at a set date in the future for an agreed price.
Traders should understand the delivery obligations associated with futures contracts and the potential need for rollover arrangements.
Options
Options give traders the right, but not the obligation, to buy or sell an underlying asset before a specified expiry date.
The two primary types of options are calls and puts.
Contracts for difference
CFDs allow traders to speculate on soybean price movements without taking ownership of the physical commodity.
Depending on the instrument, traders may take long or short positions and speculate on both rising and falling prices.
Popular soybean trading strategies
Soybean traders may use relationships between related agricultural markets to identify potential opportunities.
Corn-soybean spreads
Because corn and soybeans compete for agricultural land and often grow in similar conditions, their relative prices can provide useful information for market analysis.
Traders may compare the historical relationship between corn and soybean prices to assess whether one market appears relatively expensive or inexpensive compared with the other.
Spread relationships are analytical tools rather than guarantees of future price movements.
Crush spreads
A crush spread compares the price of raw soybeans with the value of the products created by processing them, primarily soybean oil and soybean meal.
Traders may analyse the relationship between the raw commodity and its by-products to assess potential differences in relative value.
Some strategies involve taking opposing positions in related markets, based on the expectation that price relationships may adjust over time.
What are soybean trading hours?
Soybean trading hours vary by location and may change when countries move between standard time and daylight saving time.
| Location | Trading Hours* |
|---|---|
| Chicago | 19:00 – 07:45 and 08:30 – 13:20 Central time |
| London | 01:00 – 13:45 and 14:30 – 19:20 UK time |
| Singapore | 09:00 – 21:45 and 22:30 – 03:30 Singapore time |
*Trading hours may vary. Hours can change in March, October and November as countries move to and from daylight saving time on different dates.
Understand the factors behind soybean volatility
Soybeans can be a highly volatile market because weather conditions, crop diseases and changes in agricultural production can significantly affect yearly crop yields.
Traders may also monitor the relative cost of competing crops such as corn, changes in livestock demand and consumer demand for soy-based products.
Keeping up to date with commodity market news, economic developments and agricultural forecasts can help traders better understand the factors that may influence soybean prices.
Soybean trading in summary
Soybean markets are influenced by global agriculture, weather, currency movements, demand and the relationship between related crops and products.
- The three main soybean markets are soybeans, soybean oil and soybean meal.
- The US is one of the world's largest soybean producers and exporters.
- Weather conditions can have a significant impact on soybean production and prices.
- The strength of the US dollar can influence internationally traded soybean prices.
- Emerging market demand can affect global soybean consumption.
- Corn-soybean relationships can be used as part of spread analysis.
- Crush spreads compare the value of raw soybeans with soybean oil and soybean meal.
- Soybeans can be traded through futures, options and CFDs.
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