Commodities: Soybeans
AAA
  1. Commodities: Introduction
  2. Commodities: Cocoa
  3. Commodities: Coffee
  4. Commodities: Copper
  5. Commodities: Corn
  6. Commodities: Cotton
  7. Commodities: Crude Oil
  8. Commodities: Feeder Cattle
  9. Commodities: Gold
  10. Commodities: Heating Oil
  11. Commodities: Live Cattle
  12. Commodities: Lumber
  13. Commodities: Natural Gas
  14. Commodities: Oats
  15. Commodities: Orange Juice
  16. Commodities: Platinum
  17. Commodities: Pork Bellies
  18. Commodities: Rough Rice
  19. Commodities: Silver
  20. Commodities: Soybeans
  21. Commodities: Sugar
  22. Commodities: Conclusion
Commodities: Soybeans

Commodities: Soybeans

By Noble Drakoln

First introduced in Europe in the 1700s, the soybean has become one of the most important beans in the world, securing a place for itself by providing oil and protein around the world. With applications as diversified as vegetable oil, animal feed and foodstuffs, it is no wonder that soybeans have become staples in countries far from its original roots in Eastern Asia.

Fifty-five percent of the world's soybean production occurs in the Americas. The U.S. exports 37% of the world's soybeans. Originally considered merely an industrial product before the 1920s, soybeans rose to popularity for human consumption during World War II and have had a significant impact on U.S. farming. In 2007, soybeans brought in a total of $26.8 billion.

A sample commodity futures contract for soybeans is shown in the following table.

Soybean Contract Specifications
Ticker Symbol Open Outcry: S (CBOT)
Electronic: ZIS (eCBOT)
Contract Size 5,000 bushels
Deliverable Grades No. 2 Yellow at par, No.1 yellow at 6 cents per bushel over contract price and No.3 yellow at 6 cents per bushel under contract price.*
Contract Months March, May, July, Aug, Sept, Nov
Trading Hours CBOT Open Outcry: Monday-Friday 9:30am-1:15pm CST
eCBOT Electronic: Sunday-Friday 6:31pm-6am and 9:30am-1:15pm CST
Last Trading Day The business day prior to the 15th calendar day of the contract month.
Last Delivery Day Second business day following the last trading day of the delivery month.
Price Quote Cents per bushel
Tick Size .25 cent/bu ($12.50/contract)
Daily Price Limit
(Not applicable in electronic markets)
1. 50 cents/bu ($2,500/contract) above or below the previous day\'s settlement price.
2. No limit in the spot month (limits are lifted beginning on First Position Day).

Understanding Soybean Contracts
Like every commodity, soybeans have their own ticker symbol, contract value and margin requirements. To successfully trade a commodity, you must be aware of these key components and understand how to use them to calculate your potential profits and loss.

For instance, if you buy or sell a soybean futures contract, you will see a ticker tape handle that looks like this:

S8X @ 1383\'6

This is just like saying "Soybean (S) 2008 (8) November (K) at $13.8375 per bushel (1383'6)." A trader buys or sells a soybean contract according to this type of quotation.

Depending on the quoted price, the value of a commodities contract is based on the current price of the market multiplied by the actual value of the contract itself. In this instance, the soybean contract is the equivalent of 5,000 bushels multiplied by our hypothetical price of 1383'6, as in:

$13.8375 x 5,000 bushels = $69,187.5

Commodities are traded based on margin, and the margin changes based on market volatility and the current face value of the contract. To trade a soybean contract on CBOT requires a margin of $4,725, which is approximately 7% of the face value.

Calculating a Change in Price
Because commodity contracts are customized, every price movement has its own distinct value. A one-cent move in a soybean contract is equal to $50. When determining the CBOT's soybean profit and loss figures, you calculate the difference between the contract price and the exit price, and then multiply the difference by $50. For example, if prices move from 1383'6 to 1350'6, you multiply the difference, which is 33, by $50 to yield a contract value change of $1,650.

- Buy Sell Total Value
Soybean Contract Price (1 cent move = $50) 1383\'6 1350\'6 33 cents or $1,650

Soybean Exchanges
Soybeans are traded in an open outcry format and electronically through the CME Group (Chicago Mercantile Exchange (CME), e-CBOT), the Brazilian Mercantile and Futures Exchange (BM&F), Mercado a Termino de Buenos Aires (MATba), Dalian Commodity Exchange (DCE), Kansai Commodities Exchange (KANEX), National Commodity and Derivatives Exchange (NCDEX) and the Tokyo Grain Exchange (TGE).

Facts About Production
The majority of the soybean crop is allocated for vegetable oil and as animal feed. While tofu, soy milk and other soy products have been developed for human consumption, a small portion of the crop is actually allocated for foodstuffs.

In 2008, U.S. farmers set aside 74.8 million acres for soybean plantings. In 2007, only 63.6 million acres (25.7 million hectares) were set aside for soybeans. The yield from that crop produced 2.585 billion bushels (70.36 million metric tons) of soybeans, and almost half of it, or 1.0 billion bushels (27.9 million metric tons) was exported.

Ironically, China is the largest importer of U.S. soybeans, with Mexico coming in at a distant second. Considering soybean byproducts, which are soybean meal and soybean oil, Mexico purchased $439 million worth of soybean meal and China purchased $160 million worth of soybean oil.

Factors That Influence the Soybean's Price
The price of soybeans is influenced by the following factors:
  • The soybean has two byproducts: soybean meal and soybean oil. Each byproduct market enjoys its own supply and demand chain and a relationship with one another. Soybean trading uses a strategy called the crush spread, in which a trader purchases one contract of soybeans (S) and sells one contract of soybean oil (BO) and one contract of soybean meal (SM). This is a way to diminish exposure to market forces and to create a hedge against supply and demand factors.
  • One of the most controversial influences in the soybean market is the concept of genetic modification or genetically modified organisms (GMO). Soybeans were modified to be resistant to herbicides by introducing genes taken from bacteria. Within a 10-year range from 1997-2007, the population of GMO soybeans increased from about 8% to 89%. While still a polarizing issue among consumers, GMO soybean crops have been tentatively accepted.
  • The United States Department of Agriculture (USDA) releases several important reports on soybeans. Each year in March, the Prospective Plantings is released, detailing how many and which crops will be planted by farmers for the upcoming season. Every month thereafter, the USDA releases a monthly Crop Production report, which estimates the supply and demand for soybeans. The final important report is the Grain Stocksreport, which is released four times a year and examines the supply of soybeans and various other grains on a state-by-state basis and whether the soybeans are offsite or onsite.
  • Brazil is the second largest producer of soybeans behind the U.S. In 2005, Brazil produced 52.7 million metric tons, and is attempting to expand soybean cultivation further. However, the country faces opposition from various environment groups that dispute the soybean industry's encroachment on the Amazon rain forest and the overall deforestation of Brazil for profit.
Conclusion
The soybean's price increases have a negative impact on other grains. Farmers only have so much arable land to plant crops. As a substitute good, it pushes corn and wheat aside, adversely affecting their supply and demand chains, which in turn significantly affects our global grain system. Global supplies are interdependent among countries, making all grains negatively interdependent because of the fight for limited resources. All of this leads to extreme fluctuations in the price and volatility of soybeans - the perfect environment in which to trade.
Commodities: Sugar

  1. Commodities: Introduction
  2. Commodities: Cocoa
  3. Commodities: Coffee
  4. Commodities: Copper
  5. Commodities: Corn
  6. Commodities: Cotton
  7. Commodities: Crude Oil
  8. Commodities: Feeder Cattle
  9. Commodities: Gold
  10. Commodities: Heating Oil
  11. Commodities: Live Cattle
  12. Commodities: Lumber
  13. Commodities: Natural Gas
  14. Commodities: Oats
  15. Commodities: Orange Juice
  16. Commodities: Platinum
  17. Commodities: Pork Bellies
  18. Commodities: Rough Rice
  19. Commodities: Silver
  20. Commodities: Soybeans
  21. Commodities: Sugar
  22. Commodities: Conclusion
Commodities: Soybeans
RELATED TERMS
  1. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  2. Christmas tree (oil and gas)

    A vertical assembly of mechanical elements used in oil exploration ...
  3. FPSO (Floating Production Storage and Offloading)

    Acronym for Floating Production Storage and Offloading. FPSO ...
  4. Day rate (oil drilling)

    In oil production, a day rate is the amount a drilling contractor ...
  5. Bid Wanted

    An announcement by an investor who holds a security that he or ...
  6. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  1. What are the differences between a systematic investment plan (SIP) and a recurring ...

    Differentiate between a recurring deposit and a systematic investment plan, or SIP, within an investment account, and learn ...
  2. What are the benefits and costs (or risks) of a systematic investment plan (SIP)?

    Discover the advantages and disadvantages of using a systematic investment plan; you may lower your average cost, or you ...
  3. What are the main differences between a systematic investment plan (SIP) and mutual ...

    Reduce your average cost per share on mutual fund investments using the dollar-cost averaging strategy by way of a systematic ...
  4. How do I calculate earnings per share with simple capital and complex capital structure?

    Learn the difference between simple and complex capital structures and how the structure affects a company's calculations ...
Related Tutorials
  1. Investing For Safety and Income Tutorial
    Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  2. American Depositary Receipt Basics
    Economics

    American Depositary Receipt Basics

  3. Stock Basics Tutorial
    Investing Basics

    Stock Basics Tutorial

  4. Binary Options Tutorial
    Options & Futures

    Binary Options Tutorial

  5. Top ETFs And What They Track: A Tutorial
    Mutual Funds & ETFs

    Top ETFs And What They Track: A Tutorial

Trading Center