Trading Soybeans

Soybeans, originating from East Asia, are a type of legume that is grown, sold and used across the world for many different products. The humble legume has proven itself to be one of the most important beans around ever since its introduction in Europe back in the 1700s because of its very versatile nature of being used in products like animal feeds, soy milk, soy flour, biodiesel, tofu and soy sauce.

Distributors

It is estimated that this year’s production of soybeans will be around the amount of 330.43 million metric tons according to the United States Department of Agriculture (USDA). The topmost contributors to its production are the United States with 114.32 million metric tons, Brazil with 101 million metric tons, Argentina following in third with 57 million metric tons, China which produces 12.50 million metric tons, and lastly India churning out 9.70 million metric tons of soybeans per year.

Uses

Most of the soybeans produced have the oils in them extracted. Processors take the soybeans and separate the oil from the meal. The oil can be used for cooking once refined, or sold to be used for producing biodiesel. Soybean oil is where margarine, mayonnaise and salad dressings are made from.

Feed for pork, poultry, cattle, and pets are made from the remaining fiber after having separated the oil. The largest consumers of soybean meal are the swine and poultry industries.

A process called transesterification is used to produce biodiesel from soybean oil which removes a compound called glycerin thus leaving soy biodiesel. Compared to petroleum-based diesel, soy biodiesel burns more cleanly.

How to Trade Soybeans

The Chicago Board of Trade (CBOT) and the Tokyo Grain Exchange (TGE) are where people go to trade soybean futures and options. Soybean futures are standardized which the buyer agrees with a seller the price of a specific amount of soybeans to which the buyer takes the delivery at a future delivery date. Futures prices in the Chicago Board of Trade are quoted in dollars and cents per bushel and are traded in lot sizes of 5000 bushels while the Tokyo Grain Exchange’s futures prices are quoted in yen per metric ton and are traded in units of 50 tons.

Purchasing options are a method to reduce risk when trading soybeans. Options limit a trader’s potential losses and are more flexible compared to futures contracts. It is good to remember that options prices wither as time goes on.

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