Soybeans Futures (CBOT) S

About Soybeans Futures (CBOT) S

Soybean futures and options provide a way to effectively manage the price risk that soybean merchandisers, producers, food processors, livestock operators, importers, and others have related to the purchase or sale of soybeans. Soybean futures and options identify short and long-term cyclical price and volatility patterns for soybeans. They trade to hedge or speculate based on expectations of directional price, spread movent oar volatility in soybeans. Soybean futures and options are a dollar denominated commodity, with physical delivery of 5,000 bushel per contract (approximately 136 metric tons). Soybean futures and options are traded electronically on CME Globex during the Asian and European daytime market hours as well as during the primary U.S. grain trading hours side by side with the trading floor. Primary uses for soybeans include livestock feed, edible oils and other foods. Price quotes are given in cents per bushel.

The soybean is a versatile plant with a light yellow seed that also goes by the same name. It is rich in protein and is a member of the oil seed family. It is a native of ancient Japan and Chinese countries and was their major source of proteins. It was introduced in the US in 1920 as a forage plant and has become the second largest produced crop after corn. Most of the soybean exported comes from the US. Futures are standardized and legally binding agreements that were created to formalize grain trading. Options are an additional feature on the contracts developed later which give the farmer the right but not the obligation to buy which is the call option and to sell which is the put option, a particular futures contract at a certain price for a limited period of time and helps define and limit risk.

A soybean futures contract at the Chicago Board of Trade (CBOT) which is the major market for soybean requires 5000 bushels of No. 2 yellow soybeans at par, No.1 yellow soybeans at 6 cents per bushel over contract price, or No. 3 yellow soybeans at 6 cents per bushel under contract price provided all factors equal US No. 2 except for foreign material.

Soybeans are produced worldwide and hence have a stable supply though the US takes up much of the total supply. In 2010 for example according to the USDA, it produced 35% of the total production which is about 90.6 million metric tons. The second largest producer of soybeans is Brazil with 27% of the world’s production which is about 70 million metric tones and the third largest producer is Argentina with 19% of the total world production translating to 49.5 million metric tons of soybean.

The demand for soybeans is particularly high given the variety of foods and products in which it is used. The plant itself is used as animal feed and the protein rich seed is an alternative source of protein without the effects associated with animal profit. Particularly, it is used in products such as whole soy where it can be roasted as snacks or used in stews and soups. It also makes soy oil and soy flour. Soybeans are also used in the making of protein concentrates and a host of other products like cheese, baby formula, yoghurt and many more. According to USDA, soybean oil was the second most consumed vegetable oil behind palm oil with 29% of the total consumption.

The primary market for soybeans is CBOT due to the large volumes it handles. Other soybean futures exchange centers are in Argentina, Brazil, China and Tokyo which are also leading suppliers. The soybean trade has been fuelled by large demands with China, the European Union, Mexico and Japan being the leading importers of soybeans especially from America. The domestic market also pushed the demand in US with soybeans making up 69% of the edible oils and fats consumption.