6 Things You Must Know About Soybean Futures Trading

Soybean Futures

Soybean is an oilseed crop with the primary purpose of extracting the oil contained in the seeds. Other well known oilseeds besides soybeans include sunflowers, rapeseed, cotton and peanuts. But of course, for futures traders, soybeans futures are one of the most popular contracts in this category.

The soybean trade is a global trade and is primarily appreciated in Asia as one of the natural foods. Interestingly, soybean has also found its uses in print, where some publications make use of soybean ink which is an alternative to the common petroleum based ink. When you talk about Soybeans, China can’t be left . The country is predicted to develop into the most effective importer of Soybeans from the next several years, adding more tension to the requirement.

If you’re considering trading soybean stocks are 6 things which you ought to know more about the soybean futures store.

  1. What are exemptions?
  2. Soybeans manufacturing and consumption
  3. Soybean futures specifications
  4. Fundamentals that govern soybean futures costs
  5. Reports to consider when trading exemptions futures
  6. Tips for trading exemptions futures graphs

What are Soybeans futures?

Soybeans compose the underlying stock or product for those noodle futures contract. It’s an attractive product to trade being an market for manufacturers with the majority of the requirement today seen out of the emerging marketplaces. Because of this, it’s perhaps not surprising to realize that trading stocks futures result in a rewarding proposal for traders.

Soybeans fame stems out of its own uses and importance. It’s popular as livestock feed, also an replacement meat in addition to an origin of petroleum. It’s projected that the soybean futures costs will grow exponentially because the entire world ‘s population increasing requirement for this item. From a trading standpoint, Currencies futures have become liquid trades and will be offering enormous capacity to create benefits day-trading the soybeans futures contract.

Producers and marketers compose most the trading group from soybeans contracts. The stocks futures costs help these two classes to hedge against the risk of cost changes at the soybean marketplaces. The futures contract for stocks is really a standardized contract so that much like a number of different futures contracts, it’s traded on an exchange medially two parties. All ore futures contracts demand that the traders to install the preliminary margin and also a maintenance margin and features contract expiry weeks.

Soybeans had been originally commissioned in Southeast Asia and largely by China that is becoming a net importer and balances for enormous consumption of ore. It’s stated that hens have been before all else introduced out China to its own neighbors after all the 16th century. It was introduced into Europe from the 18th century also found its way to North America in 1765. Samuel Bowen a sailor together with all the East India Company has been thought to have attracted the seeds out of China and began growing them at Georgia.

The usage of ore has transformed after all the ages. Although it had been used for petroleum or nourish it had been that the financing from Henry Ford which higher level the usage of ore that branched into soy-based services and products containing plastics found in cars. Soybeans climbed in favour through the Second World War instead for proteins from different sources. From the 1960’s that the U.S. removed tariffs on soybean exports out of Europe.

Soybeans manufacturing and consumption

The best five nations that make exemptions would be the U.S., Argentina, Brazil, China, and India. These states constitute pretty much 90 percent of earth ‘s soybean output. With the Americas constitute 55 percent of production.

The U.S. has been reportedly a top soybean producer accounting for just as a lot of as 108 million metric tons at the time of 2014 accompanied by Brazil in 86.8 million. It’s projected that the entire soybean production on the planet in 2014 has been 249 million metric tons. From the mid 90’s that the U.S. dominated the universe ‘s soybean trade, constituting just as a lot of as 90 percent of earth ‘s soybean.

Argentina is available in at the next location with production at 53.4 million metric tons. The most notable importers are currently China accounting for 41 percent and Europe to get 22 percent of imports. China’s imports of soybeans are growing exponentially, in around 55 million tons, roughly 61 percent in imports and it is predicted to grow more. From 2020, China is forecast to boost soybean imports by a second 50 percent or near 110 million metric tons.

US Agricultural Exports FY 2016 Source – USDA

Soybean is the second most planted crop in the U.S. with more than 80% of soybean farming coming from the Midwest. In 2008, in the U.S. 74.8 million acres of land is said to have been devoted to soybean production. The U.S. accounts for 44% of soybean exports and nearly 35% of production as of 2010.

Asian imports of soybeans is said to be 75 million metric tons in 2009 and is expected to rise to 130 million metric tons by 2020.

Soybean Futures Contract Specifications

Soybeans futures is traded on the CME Exchange/Chicago Board of Trade (CBOT) on the Globex electronic exchange or ICE futures. On the CME exchange, there are two versions of Soybeans futures contracts you can trade.

Mini-sized soybeans have the ticker XK while the regular soybeans contract has the ticker ZS. Below is a summary of both the types of soybeans contracts.

Type Mini-sized Soybeans Regular/Standard Soybeans
Ticker XK ZS
Contract Size 1000 bushels (27 metric tons) 5000 bushels (136 metric tons)
Tick Value 1/8th ($1.25) 1/4th ($12.5)
Tick Size 0.125 0.25
Contract Months H,K,N,U,Z F,H,K,N,Q,U,X
Initial Margin (Day trading) $500 $2500

Fundamentals that govern Soybean futures costs

Soybean marketplaces follow a pattern of a fixed cycle production which starts from planting to podding and harvesting. Each of these three stages in the soybean crop development has an influence on the final futures costs as it impacts the supply side of the chain.

When trading soybeans futures, it is important to bear the following fundamentals:

  • Planting: The field preparation and planning is usually done medially the months of mid-March through May and marks the early stage of the planning process. During these times, Soybeans futures costs tend to generally boost if the planting is in line with the expectations. The planting season also gives an early estimate of the potential supply that the planting will yield.
  • Podding: Podding is the second stage where the soybeans start to pod or reproduce. This typically takes place during the month of August. Depending on the pace of podding, the soybeans futures costs tend to boost but it could be negatively impacted on factors such as pollination which can adversely affect the final harvest.
  • Harvest: Soybeans are harvested around October through November. Factors that influence costs during the harvest period include any potential delays, crop diseases all of which can see the soybean futures costs being impacted accordingly.
  • Crop Diseases: Soybeans is susceptible to any diseases which could not only reduce the expected yield but also the quality which plays an important role in the final costs. Soybean diseases can also impact the costs for the farmers or producers and can snowball into impacting other decisions such as marketing and cropping. Asian rust is one of the well-known diseases that soybeans crops succumb to. It is a harmful fungal disease with the rust spores, once windborne can spread rapidly among the crop and can infect the entire region.
  • Demand (China): China is one of the biggest importers of soybeans and therefore the demand for the product can directly impact costs. It is expected that China will go on to import over 50% of the world’s soybeans.
  • Seasonality: Seasonal patterns are an important aspect of trading soybean futures. The harvest season is medially September and October and is marked by an boost in supply. On the other hand, winter seasons are where demand for soybeans rises the most for soybean meal for livestock for example and thus exporters start to bid up costs by late fall and early winter. February is generally a slow period for soybean futures as transportation and production is limited due to the winter.

Reports to consider when trading Soybeans futures contracts

As with most agricultural products, the USDA’s report plays a huge role in setting expectations for demand for soybeans. The USDA’s grain assets report is published four times a year and contains assets of soybeans, among other agricultural products. The report details the number and capacity of on and off the farm storage capacity.

USDA Grain Report for Soybeans – Source USDA

Tips for trading exemptions futures graphs

When trading exemptions futures graphs, it’s vital to look closely at backwardation and contango that’s a frequent occurrence from the futures store. Backwardation only suggests that costs have been trading at a reduction, whilst contango usually means that costs have been trading at an excellent price.

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Backwardation is the point where the costs of this out or distant futures contracts are somewhat higher compared to costs of the front month futures contract. From the ore marketplaces, backwardation signifies that the marketplaces wants that the ore currently and hence sends a very clear signal of rising requirement.

Contago is the point where the cost tag on front month futures trades is significantly greater compared to remote futures . This is actually a standard phenomenon for a product such as exemptions need additional charges like interest, insurance among other activities. Ergo, at a contango, front month futures are usually higher compared to remote weeks.

The table beneath shows the newest soybean futures costs for different contract months. You are able to see the way a cost for March stocks contract is higher compared to January contract , suggesting there is a growing requirement for exemptions as well as indicating the bakwardation scenario.

In contango, hedgers imply they are willing to pay for more for your product (soybeans in cases like this ) at any time later on compared to particular expected cost of this commodity (the location or front prices).

Soybeans January versus March futures costs in Backwardation

Using technical indicators such as moving averages, traders can find potential trading opportunities when such scenario presents itself.

Due to the fact that soybeans are produced in the U.S. and most of the exports going to China, futures traders is well equipped to look at the fundamentals and combine the information with the technicals in order to trade soybean futures contracts victoriously.

Soybeans futures are one of the biggest exports from the US and are one of the most popular of agricultural futures contracts. With the option to trade either the full soybean contracts or the mini-sized soybean contracts both of which having a reasonable margin requirements, futures traders can look to making decent returns when considering factors such as seasonality, the quarterly reports and other technical factors.

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