Soybean Commodities Trading

Soybeans – unexciting and boring right? Not to a commodities trader. The profit potential and low risk associated with this grain makes it one of the most popular.

First cultivated in China thousands of years ago, soybeans are still grown there. The 1800s saw their arrival in America where they were used to stabilize clipper ships. As technology has moved forward, so has their use. After WWII, when the Chinese crops were damaged, the U.S. then became one of the largest suppliers of this commodity.

The U.S. now has thirty-one states that grow soybeans, with Iowa producing over 400 million bushels and Illinois over 500 million.

Now another major competitor has stepped into the market: Brazil. The last two years has seen a reduced supply, due to a long drought, however crop yields are recovering and are expected to reach record levels in 2007. Soybeans now rival coffee (along with sugar) as one of Brazil's major exports. Brazil exported over 20 thousand metric tons of soybeans, two-thirds the U.S. total, in the 2004/5 year.

Even with supply levels rising, demand remains strong. Consuming over 25 million tons of soybean meal per year is American livestock. When you factor in livestock around the world and the fact that soybeans are also used in the preparation of dozens of human food products, you can see that soybeans are in demand.

And that demand is expected to rise, due to many factors that are unlikely to change in the foreseeable future.

Population levels throughout most of the world continue to rise, and are expected to do so for the next several decades. The U.S. population currently stands at almost 300 million and the world population is over 6.5 billion, though the rate of increase is declining slightly.

Soybeans represent a low-cost food additive that is used the world over that can feed that growing population.

Advancement continues with research and development on agricultural yields. In 1961, about 1.4 billion hectares were used for cultivation worldwide. By 1998, less than 40 years later, 1.5 billion hectares were used to grow twice the amount of grain. Advances are only beginning, ensuring productivity gain will continue to increase.

Genetics research has also improved during the last few decades, and scientists now regularly offer implementable genetic techniques to resist disease. By 2005, genetically modified crop production of herbicide-tolerant crops expanded to 87% of soybean production. Those figures were only 63% just two years previous to that.

Soybean rust continues to be a problem, but as technology advances, it is likely that this can be eliminated sometime in the near future.

And soybeans aren’t only used for food. In the U.S., most biodiesel fuel is produced from soybeans, where in Europe canola is used. Corn is used to make ethanol. With gasoline prices increasing, people are encouraged to convert some vehicles, (such as farm equipment), to diesel in order to lower their production costs.

The CBOT (Chicago Board of Exchange) trades soybean futures contracts, with the standard contract covering 5,000 bushels. The tick (minimum price fluctuation) is 1/4 cent per bushel, with a maximum price swing per day of 50 cents per bushel above or below the previous day's settlement price.

Soybeans should definitely be looked at by investors wanting to trade commodities. While the commodity itself may be boring, and unexciting, the profit potential definitely isn’t.

         

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