What to know about trading soybeans
Ben Lobel April 16, 2021 9:20 AM
Learn all about the soybean market, from the history of the commodity to what moves its price.
Soybeans are an oilseed agricultural commodity that also represent futures and spot contracts in the derivatives market. Read on for more on the commodity, what moves its price, and how to trade it with City Index.
- What are soybeans?
- Why trade soybean futures and spot prices?
- History of soybean price
- What affects the soybean price?
- How to trade soybean futures and spot price
What are soybeans?
Soybeans are legumes, also classed as oilseeds, and are used in various ways across a range of global regions. Native to East Asia and having been grown for more than 1,000 years there, they are now cultivated worldwide for human and animal consumption. A key ingredient in products such as tofu, miso and soy sauce, soybeans are also used for non-food consumer and industrial purposes too, such as sustainable fuel and as an environmentally-friendly solvent.
Soybeans are today also traded as an agricultural commodity, with the futures price available for market speculators on City Index.
Why trade soybean futures and spot prices?
In terms of trading soybeans and agricultural commodities in general, this market differs from valuable metal commodities like gold and silver in that its price is linked more to supply and demand factors, more so than its inherent value. Traders may choose to be bullish on soybeans as a way to bet on a weak USD and high inflation, if they believe global demand for the good will rise, and as a diversification strategy.
On the flipside, those shorting the soybean market may decide to do so based on demand considerations such as buyers choosing alternative crops, or macro events such as the coronavirus outbreak affecting animal feed consumption patterns.
Trading soybean futures with City Index means that market practitioners can benefit from competitive pricing, reliable trade execution and innovative trading solutions on a trusted platform.
Discover more reasons to trade with City Index.
History of soybean price
Take a look at the history of the soybean price below over the past ten years for some of the key fundamental drivers of the price of this commodity.
What affects the soybean price?
The soybean price is affected by a range of factors that traders should consider before speculating on this market. Knowing the price drivers will allow traders to be better informed on this market, and in a stronger position to predict fundamental moves. These drivers include the strength of USD, shifting patterns of global demand, and supply shocks.
As with any other agricultural commodity, supply of soybeans can be hampered by unfavourable weather including hurricanes or droughts. These can impact crop yield as well as other stages in the logistics chain such as shipping.
Brazil, for example, is a country that produces a large quantity of soybeans but often suffers from heavy rain that impacts working conditions and output. In the US, drought has been a culprit affecting inventory levels.
The US is the largest global producer of soybeans, and the commodity is quoted in USD. Accordingly, as with many other commodity prices in relation to USD, there often is an inverse relationship between dollar strength and the price of soybeans.
In the case of international trade, this means it costs a smaller amount of other currencies to buy soybeans when USD is low, and a larger amount when USD is high.
Global demand patterns
China is the largest consumer of soybeans worldwide and relies on exports from the likes of the US and Argentina to meet this demand. Also, as emerging markets develop, their commodity demand increases in line with their populations. Since soybeans are a popular food source worldwide, demand can increase dramatically from nations such as India and South Africa. If supply can meet that demand, prices should be stable, but when demand outstrips supply, they may rise. Naturally, if an oversupply outstrips demand, prices will fall.
Soybean’s potentially negative impact on biodiversity as well as problems surrounding the industry’s extensive use of agrochemicals may cause reputational issues that affect demand in future. Also, shifting demand patterns for alternative proteins for both humans and for animal feed may affect the demand for soybeans too.
Political tension can impact the trade flow of soybeans, as could be seen in the US-China trade conflict during 2019, when volumes of the commodity traded between the two nations slowed down as talk of tariffs escalated. A high level of surplus inventory from unsold soybeans as a result of a slowdown in demand would of course mean prices falling, but increasing global demand elsewhere may allow farmers to shift the commodity.
How to trade soybean futures and spot price
Trade soybean futures and spot price with City Index by following these simple steps and kickstart your market experience today.
Open a soybean trading account
Open your soybean trading account by filling out our online form and be ready to trade soybean futures or spot prices within minutes. Or if you like, you can first prepare for real money trading by opening a demo account and applying your strategy risk-free.
Planning a strategy and identifying an opportunity
It’s now time to plan a strategy and identify a trading opportunity. You may want to use a technical approach, a fundamental approach, or a mixture of both, in order to be fully informed on soybean’s potential price moves, and prepare stops and limits as part of your risk management strategy.
How to start trading
Opening and closing a position is easy once you have your strategy and opportunity planned out. Simply search ‘Soybean’ in your WebTrader searchbar (see below) for a choice of speculating on this market via its spot price or it futures price, through spread betting or CFDs.
For a spot contract, simply choose the number of contracts you would like to trade and decide, based on your strategy and analysis, whether to go long or short.
For a futures contract you will need to decide on the quantity of the commodity to buy or sell in advance of the expiry. For soybeans the expiry months are the day before the end of the month. At the point of expiry, you can decide to continue to hold your position, or settle in cash.
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